Abu Dhabi to post surplus, be on solid financial footing

“GCC sovereigns’ combined central government deficit has much improved, and we estimate it will be around $75 billion in 2019 (5.5 per cent of combined GDP), way below the 2016 nadir of $190 billion [16 per cent of combined GDP],” he said.

Saudi Arabia’s deficit makes up the majority — 50 per cent — of the GCC sovereigns’ expected $300 billion financing needs in nominal terms, but as a proportion of GDP is similar to that of Abu Dhabi and Oman in 2021, at 5 per cent. Kuwait, however, represents 20 per cent of the total, reflecting fiscal deficits widening to about 13 per cent of GDP, at least in part linked to mandatory transfers into the Future Generations Fund.

The Abu Dhabi and Kuwait governments hold liquid assets which are more than 100 per cent of their GDP, which positively effect the ratings of the countries and help them combat against economic cycles. Data revealed that general government liquid assets of Abu Dhabi are estimated to grow from $618 billion in 2018 to $686 billion in 2021. It’s estimated that the emirate’s liquid assets amounted to 232 per cent of GDP in 2018 which will increase to 249 per cent by 2021.

The reduced financing needs means and highly liquid assets will ensure that there will be plenty of liquidity in the UAE for projects such as Expo 2020, airports expansion, the Dubai Metro and other mega infrastructure projects. Official data revealed that there is already plenty of liquidity in the UAE banking sector. In addition, some analysts have projected that oil prices will hit $100 per barrel within months, which will further boost revenues for the GCC governments and help them overcome their funding needs.

Moreover, the UAE government will also register Dh12 billion revenues from the implementation of VAT this year and another Dh20 billion in 2019. While excise tax will generate additional Dh7 billion in revenues for the UAE government.

“We expect that debt issuance will meet 70 per cent of the $300 billion financing requirement. Gross debt has increased on average from 14 per cent of GDP at the end of 2014 to an estimated 38 per cent of GDP by the end of 2018, as a result. We expect that Bahrain and Qatar will finance the vast majority of their deficits through debt, while Abu Dhabi and Kuwait will draw more on their assets, and Saudi Arabia [and Oman] will show a 70:30 split,” Young said.