Large fiscal buffers and robust external position solidify UAE’s gAA2(pi) rating
KUCHING: RAM Ratings yesterday reaffirmed the United Arab Emirates’ (UAE) respective global and Asean-scale sovereign ratings of gAA2(pi)/stable and seaAAA(pi)/stable.
The ratings are backed by the country’s solid external position, ample fiscal reserves and economic fundamentals that remain supportive of growth.
These positives offset substantial contingent liabilities and an over- reliance on the hydrocarbon sector.
“The UAE registered a fiscal deficit of 2.1 per cent of GDP in 2015 as a result of dampened commodity prices and its dependence on oilrelated revenues,” it said in a statement.
“However, the government’s proactive stance on fiscal consolidation has helped contain the deficit.
“Measures include reduced grants and transfers to government- linked entities (GLEs) and the rationalisation of subsidies. The fiscal deficit is expected to narrow in the medium term in view of the gradual improvement in oil prices and the government’s commitment to fiscal consolidation.”
In any case, RAM said substantial savings in the UAE’s sovereign wealth funds to the tune of US$1.2 trillion enable the government to withstand fiscal shocks – the country has the capacity to cover over 10 times its expenditure.
Further, low government debt levels leave room to raise further debts to support the deficit.
“While the economy is still heavily reliant on the hydrocarbon sector, it has made some headway in diversification,” it added. “To this end, the country has developed thriving tourism, financial services and logistics industries.
“This helped sustain its current account performance in 2015 despite dampened commodity prices and rising imports in conjunction with megaprojects planned for Expo 2020, which the UAE will host.”
“Elsewhere, the ratings are constrained by hefty contingent liabilities arising from large and highly leveraged GLEs. Risk stems from oversupply in the real estate sector and large megaprojects undertaken by highly indebted GLEs in the lead-up to Expo 2020.
“Failure to contain contingent risks arising from potentially disruptive property- sector cor rection could affect government finances and economic stability.
“The current low oil price environment exacerbates the impact of contingent risk on the government, given lower revenue as a result of reduced hydrocarbon-related income.”