S&P assigns A/A-1 ratings on Emirate of Sharjah, outlook stable

By bne IntelliNews January 8, 2014

Standard & Poor's has assigned A/A-1 long- and short-term foreign and local currency sovereign credit ratings to the Emirate of Sharjah with a stable outlook, the ratings agency said in a statement on Jan 8. 

The ratings are supported by Sharjah’s comparatively wealthy and diverse economy, limited fiscal risks and low government debt, the ratings agency underscored. The likelihood of support from the federal UAE government if the need arises also underpins Sharjah’s ratings. But the ratings are constrained by the “still-developing political institutions and the weakness in the availability of economic and external data,” S&P noted. The government of Sharjah has low spending responsibilities since the burden of providing public services in the emirate of Sharjah is partly covered by the UAE’s federal government.

The stable outlook balances Sharjah's fiscal flexibility, and the advantages of the UAE membership, against the emirate’s still-nascent political institutions and the limited availability of timely economic data, S&P said.

Sharjah is the third-largest member of the federation of the UAE in terms of population, GDP and geographical area. The emirate has around 10% of the UAE's total population and accounted for 5% of the UAE's GDP for 2012, S&P underscored.

The fundamentals of the real economy have been strong in Sharjah, “based on a broad-based and diverse production base and supporting infrastructure.” The four largest economic sectors are real estate and business services (19%), manufacturing (17%), mining, quarrying, and energy (14%), and wholesale and retail trade (12%), according to S&P.

Sharjah’s per capita GDP stood at USD 24,600 in 2013 implying an average growth rate of 4.8% during 2011-2012, S&P estimates. The risks from contingent liabilities are reportedly limited for Sharjah. Sharjah-based banks are well capitalised and are not expected to have capital shortfalls under a stress scenario, limiting potential contingent liabilities from the financial sector, S&P noted. Sharjah-based banks are under the supervisory of the central bank of the UAE, meaning they would be eligible for liquidity and capital support from the central and the federal government if the need emerges, S&P said.

Government-related entities (GREs) in Sharjah are also significantly smaller than those in Abu Dhabi and Dubai. Their activities are mainly concentrated in the areas of transport, education, and energy, with the largest GRE being the Sharjah Electricity and Water Authority, S&P said.

The GREs in Sharjah enjoy a significant degree of financial autonomy but are not allowed to borrow without the approval of the debt management office. At end-February 2013, GRE debt reached roughly 11% of the 2012 GDP. The government does not provide guarantees for its GREs, according to S&P.

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