Moody’s Ratings has affirmed the UAE’s Aa2 long-term local and foreign currency issuer ratings, noting that the country’s outlook remains stable. The agency also affirmed the foreign currency senior unsecured debt and MTN program ratings at Aa2 and (P)Aa2, respectively.
“The affirmation reflects our expectation that the debt burden of the federal government will remain very low, supported by its long-standing adherence to a balanced budget policy and its limited spending needs due to fiscal decentralization,” stated Moody’s in its latest report.
Moody’s noted that the UAE’s rating takes into account the strong support from the government of Abu Dhabi, which plays a pivotal role in the UAE federation. “We expect the UAE’s credit profile to continue to benefit from Abu Dhabi’s very strong balance sheet, which supports the sovereign’s capacity to absorb shocks,” the statement added.
Non-oil sector growth bolsters rating
Moody’s added that the UAE has placed a major focus on expanding non-oil revenue streams, promoting the development of non-oil sectors, and improving the attractiveness of the UAE for foreign investment and talent. This raises the prospect that the government’s indirect exposure to oil price fluctuations and longer-term carbon transition risks will decline sooner and more significantly than Moody’s currently expects, strengthening the UAE’s overall credit profile.
Hydrocarbons accounted for around 22 percent of the UAE’s total GDP and an estimated 25 percent of total domestic exports of goods and services in 2024. Although the federal government does not directly collect hydrocarbon revenue, it is reliant on revenue contributions and other off-budget spending and support from the government of Abu Dhabi, which derives around 80 percent of its total fiscal revenue from oil and gas.
Moody’s added that the hydrocarbon exposure is partly mitigated by the UAE’s strong economic diversification momentum, which accelerated since 2020. Robust non-oil growth, averaging 6.3 percent during 2021-2024, has benefitted from the structural reforms, which over the past few years continued to improve the attractiveness of the UAE as the region’s prime destination for foreign investment.
Non-oil activities contribute 74.6 percent of UAE’s real GDP
The UAE’s real GDP posted a significant growth of 3.8 percent during the first nine months of 2024, reaching AED1.322 trillion. This growth was driven by a strong expansion in non-oil sectors, which grew by 4.5 percent to AED987 billion, reflecting the success of the country’s economic diversification strategy.
The contribution of non-oil activities to real GDP reached 74.6 percent, highlighting the increasing role of these sectors in supporting economic growth, while oil-related activities contributed 25.4 percent.
In terms of economic activities that contribute the most to the UAE’s non-oil GDP, the trade sector ranked first with a contribution of 16.5 percent. The UAE’s comprehensive economic partnership agreements with various nations have contributed AED135 billion to the country’s non-oil trade, an annual increase of 42 percent, Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, said in February.
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Regional tensions remain key risk
Moody’s also noted some downside credit risks for the UAE, including its exposure to regional geopolitical tensions that could disrupt the economy’s strong diversification momentum and weigh on its longer-term growth prospects.
“An escalation of third-country tensions into a military conflict could disrupt the UAE’s ability to produce and export oil, including through the Strait of Hormuz, while increasing perceptions of risk and instability in the region that could weaken its long-term economic diversification prospects,” stated Moody’s
However, geopolitical risks are partly mitigated by Abu Dhabi’s very large government financial assets that support the government’s capacity to absorb shocks. The UAE can also transport a significant share of its oil exports through the Habshan-Fujairah pipeline, which bypasses the Strait of Hormuz. Similarly, it can also utilize its recently completed freight rail network that links Abu Dhabi with Fujairah to transport other goods.
