Abu Dhabi economy is resilient: Moody’s

In a recent report, global ratings agency Moody’s Investors Service has hailed Abu Dhabi’s economic stability and the emirate’s prudent management of its hydrocarbon wealth, maintaining that Abu Dhabi’s credit strengths includes economic resilience to global downturns.

In a report published on January 16, 2014, Moody’s says that Abu Dhabi’s Aa2 rating with stable outlook is primarily supported by the prudent management of the proceeds from its vast hydrocarbon reserves. In particular, the rating agency highlights how the proceeds have resulted in structurally large fiscal and external surpluses, a very low level of direct government debt and the sizeable accumulation of sovereign wealth fund assets.

The rating agency’s report is an update to the markets and does not constitute a rating action.

Moody’s notes that Abu Dhabi’s other credit strengths include: (1) a very high per capita income; (2) a sound policy framework; (3) political stability; and (4) economic resilience to global downturns.

Abu Dhabi’s diversification efforts and the outlook for relatively high hydrocarbon prices have also shored up medium-term growth prospects. In addition, the emirate has strong foreign relations with the major global powers, in particular the US.

Moody’s says that the emirate’s dependence on hydrocarbon revenue also imposes a constraint on Abu Dhabi’s Aa2 rating. A prolonged period of low oil prices would adversely affect the country's fiscal and external positions. In addition, the government has potentially large contingent liabilities residing in the debt of its government-related issuers (GRIs), although these pose little near-term risk.

Other credit constraints are institutional—in that Abu Dhabi's governance strengths lag those of other highly rated peers—and heightened geopolitical risks, although both of these features are common to Gulf Cooperation Council sovereigns.

Factors that could exert upward pressure on Abu Dhabi's rating include further progress in economic diversification, improvements in institutional governance transparency and/or a reduction in regional geopolitical risk. Factors that could lead to downward ratings pressure include a deep shock to the global oil market or a prolonged decline in oil prices, or the crystallization of contingent liabilities, to the extent that the fiscal surplus comes under significant pressure.

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