UAE GDP to bounce back to pre-pandemic level in 3 years
Rapid vaccine rollout gives a vital boost to UAE recovery: Moody’s
The rapid rollout of the Covid-19 vaccine in the UAE could support a more rapid recovery in domestic tourism and provide a vital boost to the hospitality and retail sectors, Moody's Investor Service said as it forecast a stable outlook for the economy.
The global rating agency gave the Arab world's second-largest economy Aa2 stable outlook and predicted the country's nominal GDP would bounce back to pre-pandemic levels over the next three years.
"The credit strengths of the UAE include the high level of GDP per capita, a history of domestic political stability coupled with strong international relations, and the assumed full backing from the government of Abu Dhabi and its strong balance sheet," said Moody's analysts Thaddeus Best and Rafay Ahmad.
At $63,590 in purchasing power parity terms, the UAE's 2019 GDP per capita ranks as one of the highest in the world, said the rating agency.
The country's economy, most diversified among its GCC peers, is also relatively large in nominal GDP terms - at $354 billion in 2020 - and ranks in the top quartile of the sovereigns we rate, pointing to above-average resilience to shocks, Moody's said.
"Hydrocarbons have served as the backbone of the UAE economy, directly contributing between 30 per cent and 40 per cent of nominal GDP historically. However, the collapse in oil prices since 2015 has seen this share fall significantly to between 20 per cent and 25 per cent," the report said.
Moody's assessed the UAE's economic strength as "aa3" reflecting its very high-income level, moderately large size, abundant hydrocarbon reserves with low cost of extraction, vibrant non-oil economy and well-developed infrastructure.
The country's proven oil reserves total 97.8 billion barrels as of 2019, representing 6.0 per cent of the world's proven reserves and eighth-largest globally. "At the same time, the UAE's success in diversifying away from petrochemical industries and growing a competitive service sector set it apart from its peers."
Ranking 25th globally, the UAE is well-positioned to make further progress in developing its non-oil economy. "The UAE economy benefits from advanced infrastructure, a conducive institutional and tax environment, and efficient markets for goods and labour, which combine to produce the highest World Economic Forum competitiveness index in the Middle East and North Africa region."
While lower oil prices have eroded the size of the UAE's current-account surplus, Moody's forecast that it will remain positive over 2021 and 2022. The UAE's external breakeven is among the lowest in the GCC, standing at an estimated $23/bbl in 2020. "This relatively low sensitivity to oil prices when comparing the UAE with regional peers reflects a high share of re-exports and non-hydrocarbon goods in the UAE's export mix."
The UAE benefits from a large positive net international investment position (NIIP), although it is not officially published. Abu Dhabi Investment Authority (Adia's) assets, estimated at approximately 234 per cent of the UAE's GDP in 2020 and invested primarily overseas, represent the main component of the country's NIIP, far exceeding the stock of external debt (estimated at 99 per cent of GDP in 2020). At their current levels, combined assets of Adia and the UAE Central Bank are sufficient to cover the country's external debt and decades of current-account deficits, said Moody's.
The rating agency gave a stable outlook for Abu Dhabi, affirming the emirate's fiscal strength would remain resilient to risks related to the pandemic, particularly given the world-leading vaccination efforts, the federal government and other emirates' health authorities.
"The government has demonstrated fiscal resilience during previous periods of lower oil prices. Moreover, the planned expansion of oil production capacity to five million barrels per day by 2030 should further support growth in government revenue over the medium term," Moody's said.
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