Sharjah, RAK to grow 2-2.5%, outlook stable

Sharjah’s long-term foreign and local currency sovereign credit ratings was revised to ‘BBB-’

  
Image used for illustrative purpose, Sharjah city skyline with beautiful blue sky.

Image used for illustrative purpose, Sharjah city skyline with beautiful blue sky.

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UAE - S&P Global Ratings on Sunday downgraded Sharjah and Ras Al Khaimah’s ratings due to a rise in government debt burden and a contraction in economy, but projected a slower recovery between two and 2.5 per cent during the 2021-23 period.

Both emirates, however, were awarded a stable outlook.

Sharjah’s long-term foreign and local currency sovereign credit ratings was revised to ‘BBB-’ from ‘BBB’ and its short-term rating to ‘A-3’ from ‘A-2’.

It said Sharjah’s economy will expand steadily by about two per cent over 2021-2023, while its fiscal debt and interest burden will continue to increase over the next two years.

“Sharjah’s ability to expand its already-low revenue base remains constrained. The economic fallout from the Covid-19 pandemic and headwinds to economic activity from lower oil prices will materially lower 2020 government revenue compared with 2019. A modest economic recovery, resulting from uncertainty over the duration and full effects of Covid-19, will likely weaken revenue generation over the forecast period to 2023,” said Max McGraw, primary credit analyst at S&P Global Ratings.

He said improvement in government revenue in 2020 is the result of a one-off transfer of assets related to the Sharjah Social Security Fund of Dh3.2 billion or 2.7 per cent of GDP. In 2020, S&P expects net debt to increase to 29 per cent of GDP, up from 16 per cent in 2018.

“We also expect debt-servicing costs to increase because of the government’s commitment to support the economy through borrowing and investing, coupled with weaker forecast revenue growth. We estimate the government’s interest to revenue at 12 per cent in 2020 and expect it to climb to nearly 17 per cent by 2023.”

S&P forecast a six per cent contraction of the real economy in 2020, resulting from reduced economic activity in the emirate and the region in an effort to slow the spread of Covid-19.

Meanwhile, S&P revised down Ras Al Khaimah’s long-term rating to ‘A-’ from ‘A’ and the short-term rating to ‘A-2’ from ‘A-1’ as it expected a contraction of five per cent in 2020 to be followed by only a modest recovery.

“We expect the government to run a fiscal surplus of 0.5 per cent of GDP in 2020. The government has stated its commitment to cut or postpone expenditure to maintain a fiscal surplus, beginning with capex and opex then possibly wages and salaries if needed. We expect these cuts to offset the weaker revenue outturn in 2020. We expect the government to remain in a surplus position, averaging about 0.5 per cent of GDP over 2021-23,” McGraw added.

 
 

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