Abu Dhabi's 'AA' rating affirmed as debt of government firms falls

Debt of government-related enterprises (GREs) and state-owned enterprises (SOEs) of Abu Dhabi decreased last year and as a result the government can cut back net lending to them in the face of lower global crude oil prices.

Debt of GREs and SOEs fell to an estimated 34.5 per cent of GDP at end-2014, reflecting the authorities’ commitment to containing indebtedness, Fitch Ratings said.

Explicit contingent liabilities are clearly delineated and GREs and SOEs borrowing plans are scrutinised by the authorities.

Fitch judges that there is scope for significant cutbacks in aid, net lending to SOEs and transfers to the federal government, the areas targeted for the brunt of cuts in the 2015 budget.

Trimming capital spending offers further scope for savings, the ratings agency said.

Fitch also affirmed Abu Dhabi's 'AA' rating with stable outlooks.

Abu Dhabi’s sovereign foreign assets rose to 184 per cent of GDP at end-2014 compared with direct sovereign external debt of just 0.6 per cent of GDP, according to Fitch Ratings.

Net foreign assets are forecast at 183 per cent of GDP at end-2016 based on conservative assumptions for investment performance, it said.

Moody’s Investors Service said last month Abu Dhabi's total debt represents 40.5 per cernt of GDP, or about $105 billion including potential contingent liabilities related to government-related institutions, such as Abu Dhabi National Oil Company and Ipic, as well as other Abu Dhabi-related debt including the banking system Abu Dhabi's central government debt represents just 2.7 per cent of GDP.

The current account surplus is estimated to have exceeded 20 per cent of GDP in nine of the past 10 years and is forecast at close to double digits in 2015 and 2016.

Real GDP growth tends to exceed peers and is estimated at 5.8 per cent in 2014, with non-oil growth close to 7 per cent. Non-oil growth has averaged 7.4 per cent over the past decade, faster than growth in the oil sector for the bulk of this period.

Non-oil growth is expected to be around 4 per cent by 2016. Rising rents pushed inflation to a five-year high of 4.1 per cent in December 2014. A stabilisation of house prices should contribute to inflation averaging below 5 per cent to 2016 and has eased the limited risks to banks after a surge in real estate prices.

Bank performance is improving in line with the strengthening of economy and non-performing loans continue to trend downwards.

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