ABU DHABI’S AA/A-1+ RATING AFFIRMED: S&P
Outlook stable; assets give economy support
abu dhabi — Standard & Poor’s Ratings Services on Friday affirmed its AA/A-1+ long- and short-term foreign and local currency sovereign credit ratings on Abu Dhabi with a stable outlook.
“In our view, Abu Dhabi’s large external and fiscal net asset positions give it a considerable buffer to support its economy and mitigate the risks from external vulnerabilities,” S&P said in a report.
“The ratings on Abu Dhabi are supported by its strong fiscal and external positions, which afford it fiscal policy flexibility. The exceptional strength of its net asset positions also provides a buffer to counter the negative impact of oil price volatility on economic growth and government revenues, as well as on the external account.”
“Abu Dhabi is one of the world’s wealthiest economies; we estimate GDP per capita at $106,000 in 2013. The underpinnings of economic growth have strengthened since 2010, supported by the expansion in oil production, high public spending, and broadening of the economy’s production base including services and manufacturing.”
After reaching a high of 9.3 per cent in 2011, real economic growth moderated to 5.6 per cent in 2012, it said.
“We base our estimate of 5.2 per cent growth in 2013 on 3.5 per cent growth in the oil sector and seven per cent in the non-oil sectors. While real growth [that is, adjusted for inflation] and nominal growth levels have been robust, real GDP per capita growth has remained negative year- on-year since 2007 because of the high in- flow of foreign workers into the emirate,” S&P said. “We estimate average real per capita GDP growth during 2007-16 to be well below peers in the same GDP-per-capita category. We believe, however, that in a heavily resource-endowed economy such as Abu Dhabi, nominal GDP growth, which averaged 14 per cent annually during 20062012, is a better measure of prosperity and could substantially cushion potential risk.”
S&P said that the stable outlook balances Abu Dhabi’s economic resilience and prudent and flexible policy flexibility against the risks.
“The government’s substantial net asset position, which we estimate at 205 per cent of GDP in 2013, provides it with a comfortable buffer to meet contingent liabilities that may arise, particularly from GREs. By implementing regulations for public sector debt, the government has strengthened its oversight over public sector debt levels and aims to ensure sustainability and prevent financial stress- es in the GREs. At end-2012, the debt of Abu Dhabi’s GREs was 41 per cent of GDP, of which 19 per cent of GDP represented the parent-level debt of Mubadala Development Company, International Petroleum Investment Company, Tourism Development and Investment Company, and Abu Dhabi National Energy Company. These entities are backed by a statement of support from the government to the effect that their creditworthiness should not be differentiated from that of the government.”