Fiscal position to remain strong over next two years: S&P
Global ratings agency S&P on Sunday affirmed Abu Dhabi's "AA" long-term and expects growth will gradually pick up and that the its fiscal position will remain strong over the next two years.
Following 0.5 per cent contraction in real terms in 2017 due to the Opec's oil production cuts, S&P forecast gradual rising real GDP growth of the emirate on the back of recovering oil prices and production, and a revival in investment.
"We project that Abu Dhabi's economic growth will rise gradually to three per cent by 2021 from 1.3 per cent in 2018, supported by increased oil production, planned spending on investment projects, and recovering domestic credit growth bolstered by higher oil prices and improving demand in the region," said Zahabia Gupta, primary credit analyst at S&P.
Gupta said the Abu Dhabi government's large net asset position will provide a considerable buffer against the impact of commodity market and other volatility on the economy.
While regional geopolitical developments will have a limited impact on Abu Dhabi, S&P said in a note issued on Sunday.
"We also expect Abu Dhabi's considerable fiscal buffers will be sufficient to offset the potential financial impact of rising regional political risks. Following several years of expenditure rationalisation, we expect the government to moderately increase spending to support a revival in growth," the report noted. Earlier this month, the Abu Dhabi government announced a stimulus package of Dh50 billion - approximately 1.6 per cent of GDP annually - over the next three years to encourage new industries and improve the business operating environment. Abu Dhabi will maintain, according to S&P, an extremely strong net fiscal asset position, averaging almost 235 per cent of GDP in 2018-2021 which is one of the highest net government asset ratios among the sovereigns. Gupta sees a strong fiscal position over the next few years, supported by rising revenues and relatively smaller increases in expenditures.
"We expect the general government fiscal surplus to average eight per cent of GDP over 2018-2021. We particularly project a higher surplus of 9.7 per cent during 2018, owing to S&P's assumption of a peak in oil prices at $65/bbl."
S&P also assumes gradually rising oil production from 2019 to drive an increase in oil revenues, while higher non-oil revenues will be supported by the recent introduction of VAT of 5 per cent and excise taxes on tobacco and certain beverages in October 2017.
The global ratings agency last month revised its oil price forecasts. It now assume an average Brent oil price of $65 per barrel in 2018, $60 per barrel in 2019, and $55 per barrel over 2020-2021.
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