S&P affirms UAE’s ratings on its robust economic fundamentals

2 June, 2021 12:00 AM printer

DUBAI: S&P Global Ratings affirmed the investment grade rating of Abu Dhabi, citing the strength and resilience of its economic fundamentals and the emirate’s large fiscal buffers that are supported by revenue from the hydrocarbon sector.

The AA/Stable/A-1+ rating and stable outlook of the emirate reflects the rating agency’s expectation that despite oil price fluctuations, Abu Dhabi’s fiscal position will remain robust over the next two years and the emirate has a very strong capacity to meet financial commitments, S&P said in a statement on Tuesday, report agencies.

“The exceptional strength of the government’s balance sheet provides a buffer to counteract the effect of oil price swings and the effect of Covid-19 on economic growth, government revenue, and the external accounts, as well as the effect of high geopolitical uncertainty in the Gulf region,” the ratings agency said.

Abu Dhabi’s economy is expected to recover this year on the back of higher oil prices and a rise in economic activity as the effects of the pandemic abate. The emirate’s real gross domestic product is expected to recover to 2019 levels by 2023, according to S&P estimates.

Brent, the international benchmark, under which two-thirds of oil is traded, was up 2.18 per cent and trading at $70.83 at 12:21pm UAE time. West Texas Intermediate, which tracks US crude grades, was up 2.9 per cent and trading at $68.24.

S&P also expects Abu Dhabi’s oil production – which it estimates declined to an average of 2.8 million barrels per day in 2020 from 3.1 million bpd a year earlier – will return to the 2019 level by 2024.

“As a result, we project hydrocarbon sector growth of about 2.7 per cent annually over the forecast period,” S&P said. “The non-oil sector should increase by about 1.7 per cent annually, an acceleration in the pace of growth relative to the years prior to the pandemic, fuelled by government and GRE [government-related entities] investment programmes”.