S&P affirms Sharjah credit ratings

S&P Global Ratings has affirmed its ‘BBB-/A-3’ long- and short-term foreign and local currency sovereign credit ratings on the emirate of Sharjah. The outlook is stable.

The ratings agency estimated that the emirate’s economy to expand about 2 per cent next year. “Strong economic activity in the larger emirates of Dubai and Abu Dhabi, teamed with that across the wider GCC region and supported by favorable oil prices, should uphold Sharjah’s growth prospects,” S&P Global analysts Trevor Cullinan and Zahabia S Gupta, along Purnima Nair of Crisil, wrote in a note.

Sharjah’s economy is more diversified than that of most sovereigns in the GCC, S&P noted. “We expect all five of Sharjah’s largest economic sectors will expand in 2023: construction (13 per cent of nominal GDP), wholesale and retail trade (12 per cent), real estate activities (10 per cent), manufacturing (6 per cent), and financial services (5 per cent),” the analysts wrote.

S&P expects Sharjah’s net general government debt will rise to 44 per cent of GDP at end-2023 from under 10 per cent in 2016, alongside increasing debt-servicing costs. “The primary fiscal deficit should trend toward balance, in line with the government’s medium-term fiscal outlook. We also expect the UAE’s favourable macroeconomic fundamentals, on the back of buoyant oil and non-oil activity, to support economic growth in Sharjah and the government’s fiscal objectives,” the analysts wrote. The emirate’s GDP per capita is expected to strengthen slightly to $21,500 in 2023 from $20,700 in 2022.

According to the latest census, the emirate’s population reached 1.8 million in 2022. This represents close to a 30 per cent increase from the 1.4 million noted in the 2015 census. “We consider that a 22 per cent increase in the working age population of Sharjah between the two censuses could ultimately boost the productive capacity of the economy,” the analysts wrote.

S&P projected that Sharjah’s budgetary performance will gradually strengthen through 2026, in line with the government’s medium-term financial outlook (MTFO). “Specifically, the introduction of new revenue-raising measures, alongside the implementation of UAE-wide corporate tax, should contribute to fiscal consolidation efforts,” the analysts wrote. The government deficit is expected to narrow to 5.8 per cent in 2023 from 6.2 per cent in 2022. “We forecast revenue will increase 18 per cent in 2023, in line with the government’s budget. Our expectation of strong revenue growth in 2023 is supported by new revenue-raising measures,” the analysts wrote.

Under the MTFO, Sharjah’s government intends to balance the primary budget by 2027 and until at least 2030. “We estimate the primary deficit at 3.4 per cent of GDP in 2023, and project it will narrow to 0.7 per cent by 2026. We expect our fiscal projections for 2026 to broadly represent the peak of the government’s gross and net debt burdens, at about 56 per cent of GDP and 51 per cent of GDP, respectively, and for the government’s debt-service costs to peak below 30 per cent of revenue,” the report said.

Government spending is expected to moderate this year, the S&P analysts said. “This will largely be achieved via a halving of the government’s investment budget to Dh3 billion (2 per cent of GDP). However, investment will remain an important budgetary expense this year (14 per cent of the total), second only to debt service (18 per cent). The reduction in investment is possible because some large infrastructure projects, including road construction, have been completed. We project spending will increase about 9 per cent compared with 2022,” the analysts wrote.

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