Wednesday, Dec 31, 2008

Gulf News

Dubai: International credit ratings agency Moody's yesterday assigned its top sovereign rating for the UAE despite the recent steep decline in international oil prices.

The rating agency has retained long-term foreign and local currency issuer ratings of the UAE federal government at Aa2 with a stable outlook in its latest annual credit report.

"Our determination of government bond ratings reflects four primary rating factors: economic strength, institutional strength, government financial strength, and susceptibility to event risk," said Tristan Cooper, a Moody's vice-president and senior analyst and author of the report.

"The core assumption that underpins Moody's Aa2 ratings is that the Federal Government is fully supported by the government of Abu Dhabi, also rated Aa2," he said.

Moody's believes that Abu Dhabi's public finances are very robust and can withstand the drop in international oil prices. International oil prices fell more than 70 per cent since its July peak.

The rating agency estimates that Abu Dhabi's fiscal breakeven is at around $30 (Dh110.15) per barrel.

Even if oil prices were to fall below $30 per barrel, the Abu Dhabi Government has recourse to a large stock of offshore fin-ancial assets.

Even after accounting for the oil price decline, Moody's estimates 2008 GDP at $280 billion and its total assets in excess of $560 billion.

The UAE's hydrocarbon reserves are very large, both in absolute and per capita terms. The country's proven oil and gas reserves approximated 140 billion barrels.

This was the fifth highest level in the world. Per capita, the UAE had the fourth highest level of oil and gas reserves globally, at close to 30,000 barrels of oil equivalent.

The country also has a substantial stock of foreign assets abroad, the income from which contributes to the Gross National Income and provides a degree of diversification.

"Moody's considers the UAE's economic strength to be very high. This judgment is based primarily on the country's high level of GDP per capita, extensive reserves of oil and gas, and large holdings of offshore financial assets," said Cooper.

The UAE's Institutional Strength is assessed as High. However, Moody's notes that the UAE's institutions are still developing and that their quality continues to lag that of higher rated and even some similarly rated countries.

After considering the UAE's relatively strong ranking on indicators of institutional quality and the government's seemingly solid commitment to repay, Moody's scores the UAE at high on institutional strength, a similar score to countries such as the Czech Republic, Botswana, Bahrain, Korea, or South Africa.

The UAE's susceptibility to event risk is assessed as Moderate. While Moody's considers the risk of domestic political upheaval to be low given the country's long history of internal stability, the volatile regional political environment is of some concern.

In terms of economic event risk, Moody's considers the country's assets are large enough to withstand any shocks.

"The vulnerability of the Federal Government's fin-ances to economic and fin-ancial shocks would be felt mainly through its domestic contingent liabilities, which we consider to be extensive. However, they are still rather moderate in relation to the size of the Abu Dhabi government's financial assets, which are ultimately the main pillar of support for the Federal Government's Aa2 rating," said Cooper.

© Gulf News 2008. All rights reserved.

 

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