Fitch Ratings has affirmed Abu Dhabi’s rating at ‘AA’ with a stable outlook, citing the emirate’s strong fiscal position and high gross domestic product (GDP) per capita. Fitch forecasts Abu Dhabi’s fiscal surpluses to reach 5.4 percent of GDP in 2024 and 3.6 percent in 2025. Moreover, it expects oil production to rise in line with OPEC+’s June 2024 agreement to reach 3.375 million barrels per day by December 2025.
“We project spending to remain contained within the authorities’ target band of AED260 billion-AED300 billion. Social programs such as Nafis (Emiratisation) will contribute to a moderate rise in current spending,” added Fitch.
Funding needs fluctuate
The agency expects hydrocarbon revenue to account for 76 percent of Abu Dhabi’s fiscal revenue over 2019-23. This dependence has impacted the emirate’s funding needs, which ranged from 9 percent of GDP in 2020 to -13 percent in 2022.
Abu Dhabi’s ability to diversify revenue sources remains constrained by the Gulf Cooperation Council’s (GCC) low tax environment and policy which aims to keep conditions attractive for foreign direct investment (FDI) and support economic diversification.
However, Abu Dhabi should start receiving proceeds from corporate income tax (CIT) in 2026. Fitch projects CIT revenues to reach 1 percent of GDP, although there are large unknowns around implementation and the split of proceeds with the federal government.
Abu Dhabi’s government debt stood at 15 percent of projected 2024 GDP in June 2024, one of the lowest among Fitch-rated sovereigns.
Non-oil growth
Fitch expects Abu Dhabi’s real GDP to rise by 2.4 percent in 2024 following a 3.1 percent growth in 2023. The emirate’s oil GDP should stabilize as OPEC+ quota cuts are unwound in line with the June 2024 decision. Meanwhile, Abu Dhabi’s non-oil activity will remain dynamic, growing 5 percent this year after a 9.1 percent expansion in 2023.
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Abu Dhabi’s fiscal breakeven oil price
Fitch expects Abu Dhabi to retain a narrowing budget surplus excluding Abu Dhabi Investment Authority’s (ADIA) investment income in 2024, which will rise to 1.8 percent of GDP, reaching close to balance in 2025 and small funding needs in 2026 as oil prices gradually drop.
The agency expects Abu Dhabi’s fiscal breakeven Brent oil price excluding ADIA investment income to average $68 per barrel in 2025-2026. However, the costs associated with Abu Dhabi’s non-oil growth ambitions are mostly off-budget as a significant share of government spending is undertaken by government-related entities, including large infrastructure projects like the Etihad rail network.
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