Abu Dhabi's economy to remain resilient

Abu Dhabi - S&P affirms Abu Dhabi's 'AA' long-term and 'A-1+' short-term foreign and local currency sovereign credit ratings

Abu Dhabi's economy will remain resilient in the next two years and its fiscal position will remain extremely strong, S&P says in its latest outlook.
S&P Global Ratings affirmed its 'AA' long-term and 'A-1+' short-term foreign and local currency sovereign credit ratings on the Emirate of Abu Dhabi due to strong fiscal and external positions. The exceptional strength of the government's net asset position provides a buffer to counter the negative impact of oil price declines on economic growth and government revenues, as well as on the external account, it said.
"We expect the emirate will maintain its extremely strong net fiscal asset position, which we project at about 260 per cent of GDP on average over 2016-19," S&P said.
"We previously projected the government's net asset position over 2016-19 at 320 per cent of GDP," the rating agency said.
Despite the recent decline in oil prices, Abu Dhabi maintains one of the highest GDP per capita levels in the world, and it's very strong net government asset position, mostly in foreign currency, makes the emirate's economy resilient to shocks in the commodity market, it said.
The agency put Abu Dhabi's GDP per capita at about $68,000 in 2016. The average change in real GDP per capita, weighted as per its criteria, will likely show a contraction of about three per cent on average in 2016-19, largely due to high levels of immigration.
S&P estimated that the population increased by 70 per cent between 2008 and 2015 to 2.8 million, and will reach about 3.5 million by 2020.
Real GDP per capita growth is well below that of peers in the same GDP-per-capita category, it said. But, in its view, wealth levels in the economy could substantially cushion potential risks.
Abu Dhabi's nominal GDP fell by about 14 per cent in 2015 due to sharp drop in oil prices. The real economic growth rate at six per cent was much stronger than the previously expected two per cent, as oil production increased.
In 2015, Abu Dhabi derived about 50 per cent of its real GDP and 80 per cent of government revenues from the hydrocarbons sector.
"We assume an average Brent oil price of $46 per barrel (/bbl) in 2016-19," it said.
Government policy to encourage the economic contribution of the non-oil private sector is likely to have a significant effect only over the medium to long term, the agency said.
With revenues declining by 21 per cent due to falling oil and gas income, the rating agency estimated the general government deficit will widen to five per cent of GDP in 2016, from around four per cent in 2015, based on the government's preliminary approved budget
The Abu Dhabi government has made some progress with subsidy reform, which the rating agency expects will support the fiscal balance over the next few years. It cut utility subsidies in 2015, and the UAE federal government announced a change to the policy of fixed fuel prices, which affected Abu Dhabi and the other emirates.
From August 1, 2015, petrol prices have been set in accordance with global oil price benchmarks after adding transportation, operation, and distribution costs. - haseeb@khaleejtimes.com