The United Arab Emirates’ stable credit profile is reflective of the financial support it receives from the emirate of Abu Dhabi and its large hydrocarbon reserves, but its limited institutional transparency present challenges, according to a report by the Moody’s rating agency.

"The UAE's superior infrastructure, very high per capita income and vast hydrocarbon reserves support its creditworthiness," Thaddeus Best, a Moody's analyst and co-author of the report, said in a press release accompanying the report.

"These strengths are balanced against challenges which include limited institutional transparency and the absence of public data around offshore assets and some of the emirates' public finances," he added.

Here are some of the main points from the UAE Moody’s report:

(1.) The agency has forecast that UAE gross domestic product (GDP) will grow 2.1 percent in 2018 and 3.9 percent in 2019. The prediction for 2019 is in line with estimates from the International Monetary Fund, which has predicted 2 percent growth this year, and 3.6 percent in 2019. (Read more here).

(2.) The report forecasts non-oil growth will recover gradually in 2018-2021, supported by government spending after three years of cuts. The forecast comes as the non-oil private sector in the UAE grew in April and business confidence reached a 34-month high, according to the latest Emirates NBD Purchasing Managers’ Index. (Read more here).


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(3.) The UAE's very high fiscal strength reflects the country's record of large fiscal surpluses and build-up of very large financial assets in Abu Dhabi's sovereign wealth fund (ADIA).

(4.) As a result of Abu Dhabi's fiscal consolidation and the recovery in oil prices, Moody's expects the UAE's consolidated government deficit to decrease to 0.8 percent of GDP in 2018, from an expected 2.3 percent in 2017. Moody’s estimated that 42 percent of UAE government revenues came from hydrocarbons in 2017.

Last month, the IMF said the fiscal break-even oil price for the UAE to balance its budget is $71.50 per barrel this year. The IMF estimated that the UAE's fiscal shortfall is forecast to be 1.4 percent in 2018 and 0.8 percent next year. (Read more here).

(5.) Moody’s observed that the UAE's consolidated fiscal position shows a diverging path between Abu Dhabi, where broad spending cuts were enacted, and Dubai, which has continued to increase spending ahead of the World Expo 2020.

On a consolidated government basis, the UAE’s general government debt, at an estimated $85 billion at the end of 2017, was equivalent to 22 percent of GDP.

The majority of the UAE's government debt load is concentrated in Dubai, which as of year-end 2017, stood at estimated $60.8 billion.

Moody’s estimates Abu Dhabi's debt increased by more than 100 percent following last year's $10 billion issuance to capital markets. (Read more here).

(6.) Among the northern emirates, Moody’s estimates that Sharjah’s direct government debt reached $4.9 billion in first quarter 2018, consisting of market borrowings in the form of three sukuks of $500 million, $750 million and most recently a $1 billion issuance in March 2018.  (Read more here).


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(7.) Moody’s said it “expects the real estate market to remain subdued as residential rents and sale prices will continue to decline in 2018, due to excess supply and subdued growth”.

The report said the real estate sector contributes around 15 percent to the country’s non-oil GDP, according to 2016 estimates. While this is lower than in other similar “high-income countries” the sector is still reliant on foreign investor demand, the report added.

Further reading:

(Writing by Shane McGinley; Editing by Michael Fahy)


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