Fitch Ratings affirmed the UAE’s federal government’s long-term foreign-currency issuer default rating at AA- with a stable outlook, it said in a statement. The rating affirmation “reflects the UAE's moderate consolidated public debt level, strong net external asset position, and high GDP per capita.”

The country’s net external asset position is supported by Abu Dhabi’s sovereign net foreign assets — which comprised 122% of UAE GDP in 2023, the rating agency said, adding that the emirate holds among the highest of Fitch-rated sovereigns. Fitch affirmed Abu Dhabi's long-term foreign-currency issuer default rating at AA with a stable outlook earlier this week.

The fiscal forecast: Fitch expects to see the UAE maintain a fiscal surplus this year, although the surplus is expected to narrow from an estimated 7.8% in 2023. The UAE is expected to have a fiscal surplus of 4.1% of GDP in 2024, 3.3% in 2025, and 2.6% in 2026, with surpluses in Abu Dhabi and Dubai, and budget deficits in Ras Al Khaimah and Sharjah, Fitch says.

The UAE fiscal breakeven oil price is expected to average USD 64 per barrel in 2024-26, subject to potential adjustments based on Abu Dhabi's dividend plans. “Narrower deficits in Sharjah and higher production levels in Abu Dhabi will mitigate the gradual drop in oil prices,” Fitch said.

The federal government’s “budget is small, with revenues and expenditure at about 4% of GDP,” the rating agency said.

What’s constraining the rating: The UAE’s high reliance on hydrocarbons, “significant leverage of government-related entities,” and “weak governance indicators relative to rating peers” are the primary factors holding it back from a rating upgrade. Geopolitical tensions between Iran, Israel, and the US also pose high-security risks to Abu Dhabi's hydrocarbon infrastructure and Dubai’s status as a trade, tourism, and financial hub.

The UAE faces the risk of a downgrade if Abu Dhabi’s sovereign credit profile deteriorates, or public finances weaken, for example, “due to a sustained period of low oil prices or a materialization of contingent liabilities.” Fitch said. A geopolitical shock negatively affecting economic, social, or political stability could also trigger a lower rating.

OTHER KEY INDICATORS-

  • Consolidated government debt will land at 24% in 2024;
  • Non-oil growth forecasted at 4.3% for 2024;
  • Anticipated slowdown in non-oil growth to 3.4% in 2025;
  • Hydrocarbon GDP is expected to contract by 0.4% in 2024 and expand by 9.5% in 2025;
  • Average oil output in 2024 is anticipated to decrease, despite the relaxation of OPEC+ quotas in the latter half of the year.
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