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Fitch has affirmed ‘AA-’ rating for the UAE with a stable outlook, based on the Emirate’s strong external asset position and a high GDP per capita.
Abu Dhabi’s sovereign net foreign assets, which accounted for 122% of the UAE GDP in 2023, have further elevated the country’s position, which is among the highest of Fitch-rated sovereigns.
Fitch projects the consolidated budget for the UAE to remain in surplus in 2024 at 4.1% of GDP after 7.8% in 2023, with surpluses in Dubai and Abu Dhabi, which received a ‘AA’ rating a day earlier, along with budget deficits in Ras Al Khaimah and Sharjah.
“We forecast consolidated UAE government debt at 24% of GDP at end-2024, well below the ‘AA’ category median of 49%,” Fitch noted, saying it will be broadly stable in 2025 and 2026.
“Individual emirates have varied debt profiles, with Sharjah standing out with a higher debt burden,” Fitch added, with Dubai having repaid 29 billion UAE dirhams ($7.9 billion), or 1.5% of the UAE GDP, in market and private debt in 2023, and Emirates NBD Bank PJSC’s loans to the Dubai government fell as well.
According to Fitch, the UAE’s strengths are balanced by weak governance indicators relative to rating peers, the country’s high dependence on hydrocarbon income and the significant leverage of GREs.
Despite a moderate government debt/GDP ratio, Fitch said it views the UAE as characterised by high leverage in its economy. “We estimate overall contingent liabilities from GREs [government-related entities] of the emirates and the FG [federal government] at about 62% of UAE 2023 GDP and gross non-bank private external debt stands at 46% of GDP,” it said.
Fitch further forecasts overall GDP growth to slow to 3.1% in 2024 and pick up to 4.9% in 2025 after 3.6% in 2023.
“We expect non-oil growth of 4.3% and hydrocarbon GDP to contract by 0.4% in 2024 as average oil production in 2024 will contract despite the loosening of OPEC+ quotas in 2H24. We project non-oil growth to slow to 3.4% in 2025 but remain relatively robust despite global headwinds, supported by government and GRE spending, a robust real estate sector, dynamic past population growth and GCC demand. The hydrocarbon sector will expand by 9.5% in 2025 due to higher OPEC+ production caps,” Fitch said.
Security risks also remain on a geopolitical level with tensions between Iran and Israel and the US that Fitch said were a risk to the region, in particular to Abu Dhabi’s hydrocarbon infrastructure and to Dubai as a trade, tourism and financial hub.
(Writing by Bindu Rai, editing by Seban Scaria)
