DUBAI, Nov 11 (Reuters) - Credit ratings agency Fitch has assigned the United Arab Emirates an AA-(minus) rating with a stable outlook, citing moderate consolidated public debt levels, high GDP per capita and its strong net external asset position.
This marks the UAE federal government’s first credit rating from Fitch, a Fitch spokesman said.
The rating also reflects the likely support, if needed, of Abu Dhabi, the Gulf country’s richest emirate and its capital. Oil-rich Abu Dhabi is rated AA by Fitch, one notch above the federal government.
“These strengths are balanced by weak governance indicators relative to rating peers, the high dependence on hydrocarbon income of the UAE, the significant indebtedness of some of the Emirates and their government-related entities, and the absence of an explicit guarantee by Abu Dhabi,” Fitch said on Wednesday.
The coronavirus crisis has hit vital non-oil sectors of the UAE’s economy such as tourism and transportation, while lower oil prices have impacted revenues.
Fitch expects the UAE to have a consolidated budget deficit of 3.8% of GDP this year from a surplus of 3.8% in 2019. It forecasts the UAE economy could contract by 6.8% this year.
Individual emirates such as Dubai, Abu Dhabi, and Sharjah, have already become issuers of international debt. The UAE has no debt of its own but plans to sell federal bonds soon.
Several Gulf governments have borrowed recently to bolster public finances hit by the coronavirus pandemic and weak oil prices.
Fitch expects consolidated UAE government debt to rise to about 45% of GDP by 2022 from a current 34% of GDP, due to wider deficits and the federal government issuance plans.
While UAE federal debt is currently below similarly rated countries, Fitch said the UAE was “characterised by a high degree of leverage in its economy.” It estimated contingent liabilities from government related entities to account for about 80% of the country’s 2020 GDP.
Reporting by Davide Barbuscia. Editing by Jane Merriman
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