S&P affirms Abu Dhabi’s AA/A-1+ ratings with stable outlook on strong financials

By bne IntelliNews November 8, 2013

Standard & Poor's affirmed on Nov 8 its AA/A-1+ long and short-term foreign and local currency sovereign credit ratings on Abu Dhabi with a stable outlook. Abu Dhabi's large external and fiscal net asset positions provide the emirate with a strong buffer to support its economy and mitigate the risks from external vulnerabilities, S&P said. The stable outlook balances Abu Dhabi's wealthy economy “and prudent and flexible policies” against the risks from structural and institutional weaknesses, high contingent liabilities, and limited monetary policy flexibility, S&P underscored.

But Abu Dhabi’s ratings are constrained by its less-developed political institutions and “bigger structural weaknesses than non-regional peers in the same ratings category.”

The contingent liabilities from Abu Dhabi-based government-related entities (GREs), limited monetary policy flexibility, given the currency peg and the underdeveloped domestic bond markets, also constrain the ratings, S&P said.

Abu Dhabi is one of the world's wealthiest economies with an estimated GDP per capita at USD 106,000 in 2013. S&P noted that Abu Dhabi’s economic growth have strengthened since 2010, supported by rising oil output, high public spending, and broadening of the economy’s production base including services and manufacturing. The emirate’s GDP growth will reach 5.2% in 2013 (down from 5.6% a year earlier) on 3.5% growth in the oil sector and 7.0% in the non-oil sectors, S&P forecasts.

Assuming an oil export price of USD 110 per barrel in 2013, Abu Dhabi’s fiscal surplus will reach 13.3% of GDP (including petroleum dividends and investment income), according to S&P. In 2014-2016--and assuming that oil prices remain around USD 110 per barrel-- the fiscal surplus will average 11% of GDP, helping to further boost  Abu Dhabi’s net asset position, S&P noted.

The ratings agency commented Abu Dhabi’s robust net asset position, estimated at 205% of GDP in 2013. The latter will provide the emirate with a comfortable buffer to meet contingent liabilities that may arise, particularly from government-related enterprises (GREs). At end-2012, the debt of Abu Dhabi's GREs was 41% of GDP, of which 19% of GDP represented the parent-level debt of Mubadala Development Company, International Petroleum Investment Company, Tourism Development and Investment Company, and Abu Dhabi National Energy Company, S&P said.

The local currency peg to the USD constrains Abu Dhabi’s monetary policy independence, S&P warned. The “underdeveloped capital markets” also weigh on the transmission of monetary decisions. But the government is considering the regular issuance of domestic debt from 2014 to strengthen domestic capital markets, S&P said.

Related Articles

Iran, Syria sign raft of memoranda and deals

Following the purge of foreign-backed rebels in the devastated Syrian city of Aleppo by Iranian, Lebanese and Russian forces, Damascus’s prime minister Imad Khamis was in Tehran to sign five ... more

Egypt could return to emergency rule amidst deadly bomb explosions

A spate of explosions in Egypt over the long weekend marking the birthday of Prophet Mohamed culminated in the detonation of a bomb at a church attached to the Coptic Christian Cathedral that ... more

Egypt’s inflation spikes post November currency floatation, rate hike expected

Egypt’s annual inflation rate spiked in November to hit its highest levels since July 2008, reflecting the effects of the general rise in price levels of goods since the Egyptian pound’s ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss