Evolving deficit financing mechanism

The structure of the UAE’s deficit financing has also evolved in the aftermath of the oil price shock, with a greater emphasis on international market issuance, according to Moody’s.

At the outset of the oil shock, most of the deficit was financed through cash withdrawals from domestic banks. However, from 2016 onwards the government of Abu Dhabi turned to sovereign wealth fund transfers and debt issuance to finance the deficit, tapping the market in May 2016 with an issuance of $5 billion in five- and 10-year bonds, and again in October 2017 with a $10 billion issuance in three tranches.

According to Moody’s, government assets are substantial and concentrated in Abu Dhabi offshore assets that support the UAE’s general government structure, starting with Abu Dhabi’s sovereign wealth fund, the Abu Dhabi Investment Authority (ADIA). ADIA itself does not disclose its asset size or composition. The Institute of International Finance estimates ADIA’s total assets at $577 billion (equivalent to 155 per cent of the UAE’s 2017 GDP or more than five years of general government expenditure) as of end 2017. The Sovereign Wealth Fund Institute (SWFI) has a higher estimate at $828 billion.