Fitch Ratings has affirmed the UAE’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘AA-‘ with a Stable Outlook. This comes even as overall GDP growth is expected to slow to 3.1 percent in 2024 before picking up to 4.9 percent in 2025 after 3.6 percent in 2023.
Diverging non-oil and oil sectors
Fitch expects non-oil growth of 4.3 percent in 2024, but the hydrocarbon GDP is projected to contract by 0.4 percent that year as average oil production is set to decline despite the loosening of OPEC+ quotas in the second half of 2024.
Strengths supporting the ‘AA-‘ rating
The ‘AA-‘ rating reflects the UAE’s moderate consolidated public debt level, strong net external asset position, and high GDP per capita. This is bolstered by Abu Dhabi’s substantial sovereign net foreign assets, which were around 122 percent of UAE GDP in 2023, among the highest of Fitch-rated sovereigns.
Balancing factors for the rating
These strengths are balanced by relatively weak governance indicators compared to rating peers, the UAE’s high dependence on hydrocarbon income, and the significant leverage of government-related entities (GREs).
Outlook for non-oil and oil growth in 2025
Fitch projects non-oil growth to slow to 3.4 percent in 2025 but remain relatively robust, supported by government and GRE spending, a vibrant real estate sector, past population growth, and demand from the GCC region. The hydrocarbon sector is expected to expand by 9.5 percent in 2025 due to higher OPEC+ production caps.
Fiscal performance and budget dynamics
The consolidated budget is forecast to remain in surplus in 2024 at 4.1 percent of GDP, after a 7.8 percent surplus in 2023. This reflects surpluses in Abu Dhabi and Dubai, offset by deficits in Ras Al Khaimah and Sharjah.
Fiscal breakeven oil price, projected surpluses
Fitch estimates the UAE’s fiscal breakeven oil price will average $64/bbl in 2024-26, though Abu Dhabi’s GRE dividend plans could be larger than forecast and reduce this. The consolidated surplus is projected to be 3.3 percent of GDP in 2025 and 2.6 percent in 2026, as narrower deficits in Sharjah and higher production levels in Abu Dhabi offset the gradual drop in oil prices.
Federal government’s fiscal position
The federal government’s budget is small, with revenues and expenditure at about 4 percent of GDP. Its remit is centered around providing essential public services. The federal government is required by law to balance its current budget and has a record of broadly balancing the overall budget, though it has limited fiscal flexibility.
Government debt dynamics
Fitch forecasts the UAE’s consolidated government debt to be around 24 percent of GDP at the end of 2024, well below the ‘AA’ category median of 49 percent. Debt levels are expected to remain broadly stable in 2025 and 2026, with individual emirates having varied debt profiles.
High leverage in the UAE economy
Despite the moderate government debt-to-GDP ratio, Fitch views the UAE as characterized by high leverage in its economy, estimating contingent liabilities from GREs at about 62 percent of 2023 GDP, and gross non-bank private external debt at 46 percent of GDP.
Read more: UAE economy emerges as the most competitive as per Arab Monetary Fund
ESG – governance
The UAE has an ESG Relevance Score (RS) of ‘5[+]’ for both Political Stability and Rights, as well as for the Rule of Law, Institutional and Regulatory Quality, and Control of Corruption. In addition, these high scores reflect the UAE’s strong performance on the World Bank Governance Indicators (WBGI), which are heavily weighted in Fitch’s proprietary Sovereign Rating Model. The UAE ranks in the 70th percentile on the WBGI, indicating a high degree of domestic political stability, institutional capacity, effective rule of law, and low corruption.
Sovereign rating model and qualitative overlay
Fitch’s proprietary Sovereign Rating Model (SRM) assigns the UAE a score equivalent to an ‘AA-‘ Long-Term Foreign-Currency (LT FC) IDR. Fitch’s rating committee did not adjust the SRM output to arrive at the final LT FC IDR.
The SRM uses 18 variables based on three-year centered averages, including one year of forecasts, to produce the LT FC IDR score. Additionally, Fitch’s Qualitative Overlay (QO) is a forward-looking framework that allows for adjustments to the SRM output, reflecting factors within Fitch’s criteria that are not fully quantifiable and/or reflected in the SRM.
Country ceiling
The UAE’s Country Ceiling is ‘AA+’, two notches above the Long-Term Foreign-Currency IDR. This reflects strong constraints and incentives against the imposition of capital or exchange controls that would prevent or significantly impede the private sector’s ability to service debt payments to non-resident creditors.
Fitch’s Country Ceiling Model produced a starting point uplift of +1 notch above the IDR. Fitch’s rating committee applied a further +1 notch qualitative adjustment under the Near-term Macro-Financial Stability Risks and Exchange Rate Risks pillar, reflecting the volatility of the UAE’s dollarization of deposits, which may be related to rising U.S. dollar-denominated hydrocarbon export proceeds or the influx of new residents. Furthermore, external buffers are large, and the creation of a UAE dirham yield curve may reduce dollarization in the future, supporting the two-notch uplift.
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