World Economy

Abu Dhabi AA/A-1+ Ratings Affirmed

Abu Dhabi AA/A-1+ Ratings AffirmedAbu Dhabi AA/A-1+ Ratings Affirmed

Standard & Poor’s (S&P) Ratings Services affirmed its ‘AA’ long-term and ‘A-1+’ short-term foreign and local currency sovereign credit ratings on the Emirate of Abu Dhabi, a member of the United Arab Emirates (UAE), CPI Financial reported.

The ratings are supported by Abu Dhabi’s strong fiscal and external positions, which afford it fiscal policy flexibility. The exceptional strength of Abu Dhabi’s net asset positions also provides a buffer to counter the negative impact of oil price volatility on economic growth and government revenues, as well as on the external account.

The ratings are constrained by the view that the emirate has less-developed political institutions than those of non-regional peers in the same rating category. Limited monetary policy flexibility, in view of the dirham’s peg to the US dollar and the underdeveloped local currency domestic bond market, also weighs on the ratings.

S&P estimates GDP per capita at $102,000 in 2014. Economic growth is supported by rising oil production, high public spending, and a broadening of the economy’s production base, including services and manufacturing.

Real growth (that is, adjusted for inflation) and nominal growth levels have been robust. However, real GDP per capita growth, weighted as per S&P’s criteria, is contracting by about three percent largely due to the high flow of foreign workers into the emirate. Real GDP per capita growth is well below peers’ in the same GDP-per-capita category. S&P believes, however, that in a heavily resource-endowed economy such as Abu Dhabi, nominal GDP growth -- which averaged 11 percent annually during 2007-2013 -- is a better measure of prosperity and could substantially cushion potential risk.

S&P assumes that oil prices will moderate to about $100 per barrel (bbl) in 2016 and beyond, from about $105 per bbl in 2014.