ABU DHABI: S&P Global Ratings has affirmed its ‘AA’ long-term and ‘A-1+’ short- term foreign and local currency sovereign credit ratings on the Emirate of Abu Dhabi. The outlook is stable.

At the same time, we affirmed our ‘AA’ long-term foreign currency issue rating on the sovereign-guaranteed bond of senior unsecured debt issued by Waha Aerospace BV.

The stable outlook on Abu Dhabi reflects our expectation that economic growth will gradually pick up and its fiscal position will remain extremely strong over the next two years.

We could consider raising our ratings on Abu Dhabi if we observed pronounced improvements in data transparency, including on fiscal assets and external data, alongside further progress in institutional reforms.

Moreover, measures to improve the effectiveness of monetary policy, such as developing domestic capital markets, could be positive for the ratings over time.

We could consider a negative rating action if we expected a material deterioration in Abu Dhabi’s currently very strong fiscal balance sheet and net external asset position. If fiscal deficits or the materialization of contingent liabilities led to a drop in liquid assets to below 100% of GDP, pressure on the ratings would develop. A downward rating action could also follow domestic or regional events that compromised economic stability in Abu Dhabi.

The ratings are supported by Abu Dhabi’s strong fiscal and external positions.

We continue to expect that the Abu Dhabi government’s large net asset position will provide a considerable buffer against the impact of commodity market volatility on the economy.

We are therefore affirming our ‘AA/A-1+’ sovereign credit ratings on Abu Dhabi. •

Limited monetary policy flexibility (given the UAE dirham’s peg to the US dollar); gaps and delays in the provision of macroeconomic, fiscal, and external data; as well as the underdeveloped local currency domestic bond market also weigh on the ratings.

Recent economic activity has been subdued, mainly owing to the Organization of the Petroleum Exporting Countries’ (OPEC’s) oil production cuts in 2017.

Institutional and Economic Profile: Economic growth to average 2.6% in 2018-2021

We forecast gradually rising real GDP growth, on the back of recovering oil prices and production, and a revival of investments.

Abu Dhabi currently derives 50% of its real GDP and 60% of government revenues from the hydrocarbon sector, by our 2017 estimates, including oil taxes and royalties, plus dividends from state-owned oil producer, refiner, and distributor Abu Dhabi National Oil Co. (Adnoc). We assume an average Brent oil price of $55 per barrel in 2018-2021.