Fitch Ratings has assigned a long-term foreign currency issuer default rating of AA- for the UAE, with a stable outlook, but highlighted ‘significant indebtedness’, with Dubai’s debt running at 80 percent of GDP.
The ratings agency forecasted consolidated UAE government debt at 34 percent of GDP in 2020, highlighting strengths including the country’s moderate consolidated debt level, strong net external asset position and high GDP per capita.
Fitch’s rating also reflects the likelihood of support from Abu Dhabi, rated AA/Stable, in the event of need, the agency said.
However the strengths were are balanced by a number of factors: “These strengths are balanced by weak governance indicators relative to rating peers, the high dependence on hydrocarbon income of the UAE, the significant indebtedness of some of the Emirates and their government-related entities (GREs), and the absence of an explicit guarantee by Abu Dhabi,” said Fitch.
The ratings agency highlighted Dubai as ‘standing out’ with debt at close to 80 percent of GDP.
“Individual Emirates present varied debt profiles, with the Emirate of Dubai standing out with debt at close to 80 percent of Dubai's GDP in 2020 according to Fitch's forecast (based on data provided in Dubai's latest bond prospectus and adding the debt owed to Emirates NBD, in line with IMF practices).
“We expect debt to continue to rise over the next two years, mostly in Abu Dhabi and to a lower degree Dubai, due to low oil prices, a subdued non-oil growth outlook and a preference for debt over asset drawdowns in Abu Dhabi.”
The UAE’s debt will rise to 45 percent of GDP by 2022, driven by the Emirates' deficits and the federal government debt issuances, Fitch concluded.
(Writing by Imogen Lillywhite; editing by Daniel Luiz)
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