Fitch holds RAK at A+ but keeps negative outlook as war weighs on growth

RAK has escaped a Fitch downgrade — for now: Fitch Ratings affirmed Ras Al Khaimah’s (RAK) long-term issuer default rating at A+ and removed the emirate from a downgrade review, but it maintained a negative outlook as the regional conflict threatens the tourism- and investment-led growth story behind its 2024 upgrade, according to a statement. Direct war-related risks have eased since April, Fitch said, but the impact on RAK’s credit profile “will take longer to discern.”

The war isn’t hitting RAK head-on, but it is hitting where it hurts: As a non-hydrocarbon exporter, RAK is primarily exposed through weaker trade and tourism and higher input costs, with ports, maritime activity, and energy-intensive manufacturing also vulnerable. Fitch assumes that restrictions on transit through the Strait of Hormuz will ease during 1H 2027, allowing regional trade and travel to gradually recover.

Growth has taken a sizeable haircut, although RAK is holding up better than Fitch feared: Real GDP growth is now forecast at 1.5% this year, down from 6% in 2025 but better than Fitch’s previous projection of a 1.8% contraction. Solid domestic demand and stronger intra-Gulf activity helped cushion 1H, particularly in mining and the economic zones. Growth is expected to rebound to 5% in 2027 and 4.5% in 2028, still well below the 7.5% average Fitch expected for 2026-2027 before the conflict.

Then there’s the USD 5.7 bn elephant on Al Marjan Island: Wynn Al Marjan Island’s budget has climbed from USD 5.2 bn before the conflict, reflecting war-related costs and project enhancements, while shipping and supply-chain disruption pushed its opening from 1Q 2027 to September 2027. While the conflict has only slightly delayed what Fitch describes as “a potentially transformative investment project,” the downturn in foreign tourism inflows could still pose a threat.

That delay hits the government too: Gaming taxes, tourism fees, and other destination-related receipts are now not expected to contribute until 2028 — and Fitch expects them to come in below its previous forecasts. The agency warns that demand from the high-value international tourists RAK is targeting “remains exposed to regional security conditions.”

The budget is bending, not breaking: Fitch expects RAK to swing to a fiscal deficit of 1.2% of GDP this year from a 0.2% surplus in 2025 as weaker trade, state-owned company earnings, VAT, and land sales drag on revenues. But the balance is expected to return to zero in 2027 before recording a 2.8% surplus in 2028. Public sector debt should remain around just 11% of GDP through 2028, comfortably below the 59% average for A-rated peers, while government deposits stand at around 18% of GDP.

RAK also has the UAE-sized safety net: Fitch says federation membership supports the rating through the UAE’s USD peg and external reserves, Abu Dhabi’s sovereign assets, federal spending, and shared revenues including VAT redistribution, providing some insulation from emirate-specific shocks.

REMEMBER- S&P is a little less worried: S&P affirmed RAK at A/A-1 with a stable outlook last month, despite similarly cutting its growth expectations on weaker international trade and tourism. The agency sees growth at 1.8% this year, slightly above Fitch’s 1.5%.

What gets the minus sign off the outlook? Fitch wants evidence that the conflict hasn’t materially impaired the medium-term growth and revenue prospects underpinning RAK’s expansion. A sustained deterioration in perceptions of regional security that weighs on investment and tourism — or evidence that the conflict has permanently weakened growth and revenues — could instead put the rating under renewed pressure.