Moody’s affirms UAE and Abu Dhabi’s gov’t credit ratings

Credit ratings agency Moody’s affirmed the UAE government’s Aa2 rating for long-term local and foreign currency issuances with a stable outlook, it said in a statement seen by EnterpriseAM UAE. Ratings for foreign currency senior unsecured debt stayed at Aa2, while the medium-term note program kept its (P)Aa2 rating as well.

The rationale: The government’s adherence to a balanced budget policy and limited spending due to fiscal decentralization keep its debt burden low, the agency said. Potential risks like the energy transition, regional geopolitical tension, and a drop in oil prices are offset to a certain extent by economic diversification efforts to promote non-hydrocarbon sectors, encourage FDI inflows, and establish itself as a transport, logistics, and financial services hub.

The rating emphasized Abu Dhabi’s role in bolstering the UAE federal government’s overall outlook thanks to its strong balance sheet, however it noted that 80% of the emirate’s total fiscal revenue comes from oil and gas.

Speaking of Abu Dhabi, Moody’s also affirmed its government’s Aa2 rating for long-term local and foreign currency issuances with a stable outlook. Likewise, its foreign currency senior unsecured debt ratings stayed at Aa2 and its short-term local and foreign currency issuer ratings at P-1.

The emirate’s large financial assets and low debt were behind the decision, and Moody’s said low fiscal breakeven oil prices, prudent spending, and large financial assets would help the emirate weather any economic shocks like fluctuating oil prices affecting its hydrocarbon-reliant economy. As a strong competitor in the oil market, the emirate is likely to still generate income from the sector despite the green transition.