Abu Dhabi foreign assets set to hit Dh1.1trn

Abu Dhabi government’s foreign assets – including equity investments – are estimated at approaching $300 billion (Dh1.1 trillion), with just $4 billion (Dh15 billion) of direct sovereign external debt, Fitch Ratings said on Friday.

Sovereign net foreign assets – which make up an estimated 167 per cent of emirate’s GDP – are second only to Kuwait.

The ratings agency estimated that gross sovereign financial assets by the end of 2011 will be 16 per cent higher than their end-2007 level, having dipped only slightly in 2008. At current oil prices, they are forecast to rise steadily, propelled by investment returns and overall fiscal surpluses.

Richard Fox, Head of Middle East and Africa Sovereigns at Fitch, said: "The 2008-2009 global financial crisis was a severe stress test for Abu Dhabi, but one which left its balance sheet largely undented. Any future stress would have to have harsher consequences than this to trigger negative rating action.,"

Abu Dhabi's rating is anchored by one of the strongest balance sheets of any rated country.

The agency estimates the overall fiscal balance, including Adnoc dividends and Adia investment income, was close to balance last year, and forecasts a double digit percentage of GDP surplus this year, based on higher oil prices and production and contained spending.

The budget strategy remains firmly focussed on fiscal consolidation. Overall spending was essentially unchanged last year and is budgeted to fall this year, although this may prove ambitious. Some investment projects have been scaled back and others are under review. The objective of diversifying the economy remains, but will likely take place at a more measured pace from now on. Non-oil real GDP growth will therefore likely slow from the 5 per cent pace estimated for 2009-2010.

State-owned and government related enterprises (SOE/GREs), banks and other emirates remain potential contingent liabilities. Support of around 10 per cent of GDP was provided to Abu Dhabi banks and Dubai in 2009 and total budget support for SOE/GREs exceeded 8 per cent of GDP last year. While this demonstrates the potential cost of contingent liabilities, Abu Dhabi's ability to provide such support without seriously denting its balance sheet also emphasises its considerable fiscal flexibility. There is a risk that Abu Dhabi will have to dedicate more resources to meeting contingent liabilities, but Fitch considers potential liabilities are still small compared with sovereign assets.

Abu Dhabi's overall balance sheet, taking into account all of its entities' external debt, remains stronger than 'AA'/'AAA' medians but is weaker than some 'AA' peer countries. However, SOE/GREs also have external assets which Fitch's analysis cannot take into account in the absence of a comprehensive balance sheet for "Abu Dhabi Inc."

Abu Dhabi has the third-highest per capita income of any rated sovereign, founded on a high per capita hydrocarbons endowment. However, human development and business environment indicators (albeit for UAE as a whole) are generally weaker than 'AA' medians.

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