Abu Dhabi retains S&P’s ‘stable’ credit rating at AA/Stable/A-1+

By Rahul Vaimal, Associate Editor
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Global credit rating agency Standard & Poor’s has retained Abu Dhabi’s credit rating at AA/Stable/A-1+ with a stable outlook in consideration to the impact of COVID-19 and the recent acute decline in oil prices on the economy.

“The stable outlook reflects our expectation that Abu Dhabi’s fiscal and external net asset positions will remain strong over the next two years, although structural economic and institutional weaknesses will likely persist.”
 Zahabia S Gupta, Analyst – S&P 

“In line with our economic outlook, we anticipate a recovery of GDP and oil demand through the second half of 2020 and into 2021 as the most severe effects of the coronavirus outbreak moderate,” said Mr. Gupta added.

These evaluations indicate S&P’s opinion of Abu Dhabi’s robust fiscal and external positions. The extraordinary strength of the government’s net asset position gives a cushion to offset the effect of oil price swings and COVID-19 on economic growth, government revenue, and the external account, as well as the result of rising geopolitical ambiguity in the Gulf region and the potential crystallization of contingent liabilities.

ADNOC Offshore Rig

Abu Dhabi’s economy and public finances depend massively on the crude oil sector. Abu Dhabi currently acquires 50 percent of its real GDP and about 90 percent of central government income from the hydrocarbon sector. This includes oil taxes and royalties, plus dividends from state-owned oil producer, refiner, and distributor Abu Dhabi National Oil Co. (ADNOC).

The rating agency foresees Abu Dhabi’s oil production will decrease to an average of 2.8 million bbl/day in 2020, from 3.1 million in 2019. Non-oil sectors such as real estate, trade, retail, and hospitality will also be unusually affected.

S&P expects a reduction in real GDP of 7.5 percent and of nominal GDP by 22 percent in 2020, and steady improvement from 2021, with real GDP averaging 2.2 percent over 2021-2023.

“In our view, Abu Dhabi’s wealth levels mitigate the effect of weak trend growth, which we project throughout the forecast horizon, on the sovereign’s creditworthiness. We estimate Abu Dhabi’s GDP per capita at $78,000 in 2020,” Mr. Gupta added.

In light of the lower oil prices, S&P forecasts growth in Abu Dhabi’s central government fiscal deficit to about 12 percent of GDP in 2020 from 0.3 percent in 2019.

We anticipate that the authorities will increase capital expenditure, its stimulus program announced in 2019 (Ghadan 21 initiative), and contributions to the federal authorities to manage the economic and social impact of the COVID-19 pandemic Mr. Gupta concluded.