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The strength of the government's balance sheet, a very high per capita income, vast hydrocarbon reserves and superior infrastructure will support the credit profile of Abu Dhabi, said Moody’s Investors Service.
In addition, domestic politics are stable and the UAE (UAE, Aa2 stable) has good relations with the international community, the ratings agency noted in its annual credit analysis.
“A very high per capita income, vast hydrocarbon reserves and superior infrastructure also support creditworthiness. We expect Abu Dhabi’s fiscal strength will remain resilient to risks related to pandemic, particularly given the world-leading vaccination efforts by Abu Dhabi, the federal government and other emirates’ health authorities,” said Thaddeus Best, a Moody’s analyst.
However, Abu Dhabi's main credit challenges lie in a lack of institutional data transparency, particularly the absence of public figures on prospective budgets and on the composition of offshore assets managed by Abu Dhabi Investment Authority's (ADIA). Regional geopolitical tensions present event risks, and the emirate's dependence on hydrocarbons is also a significant vulnerability, the report said.
That said, the investment returns from ADIA provide an additional source of stable revenue for Abu Dhabi. “We estimate that total government debt is equivalent to 5 percent of the total value of the ADIA gross assets under management,” Moody’s noted.
On economic strength, Moody’s scores Abu Dhabi at “a1,” similar to Saudi Arabia (A1 negative), Hong Kong (Aa3 stable), and Qatar (Aa3 stable). The rating moved up from an initial “a3”.
Abu Dhabi’s institutions and governance strength score is “a2”. There have been some improvements in governance in recent years, particularly just after the 2015 oil price shock that demonstrated the government's willingness and ability to implement new fiscal measures, in contrast to other GCC sovereigns, the report said.
On fiscal strength the emirate scored at “aa1”, reflecting the vast amount of wealth and resources at the government's disposal relative to debt. This comes above the initial outcome of “aa2” to reflect the credibility of the UAE's fixed-exchange regime, which significantly lowers exchange rate risk from Abu Dhabi's foreign currency borrowings.
Moody’s “baa” assessment of Abu Dhabi’s susceptibility to event risk is the same as the UAE’s and is primarily driven by geopolitical factors.
(Writing by Brinda Darasha; editing by Daniel Luiz)
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