By Arabian Business staff writer
Agency said emirate's fiscal breakeven is $30 a barrel of oil, but assets would support deficits.
Abu Dhabi's fiscal surplus and large offshore financial assets are the main pillars supporting the emirate's high sovereign ratings, Moody's Investors Service said in its new credit report on Abu Dhabi, published on Saturday.
The long-term foreign and local currency issuer ratings of the government of Abu Dhabi are Aa2 while the short-term foreign and local currency issuer ratings are Prime-1 while the outlook on these ratings is stable, it said.
"Abu Dhabi's public finances are very robust and can easily withstand the recent steep fall in international oil prices. We estimate that Abu Dhabi's fiscal breakeven is around $30 per barrel, considerably below today's oil price," Tristan Cooper, vice president/senior analyst and author of the report, said:
Even if oil prices were to fall below $30 per barrel, the Abu Dhabi government could afford to run sizeable fiscal deficits for many years given its large stock of financial assets, it said.
These assets are mostly managed by the Abu Dhabi Investment Authority and are held offshore in a range of instruments including blue chip equities, bonds, and real estate, it added.
The government of Abu Dhabi currently has very little direct or guaranteed debt but its domestic contingent liabilities are extensive, the agency said.
"Given its economic dominance and leadership role within the UAE, Moody's believes that there is a high likelihood that, although not legally obligated, Abu Dhabi would provide financial support either directly or indirectly to other emirate governments and systemically important banks and government-owned companies in the UAE if they were faced with difficulties that threatened the reputation or economic health of the country," Cooper said.
Moody's stressed, however, that it is unlikely that these contingent liabilities, which have a range of maturities, would all crystallise onto the balance sheet of the Abu Dhabi government.
Most government-owned companies and banks in the country are profitable, well-managed and have significant net assets and even under a plausible worst-case scenario, the potential liabilities of the Abu Dhabi government could be amply covered by its assets, it said.
Aside from its impact through falling oil prices, the global economic crisis has also affected the emirate's non-oil sectors.
"Financing has become more difficult given a shortage of liquidity among local and international banks and confidence has been hit by the steep fall in the local equity market and a reported softening of real estate prices. Nevertheless, Abu Dhabi is better placed than other emirates and most other countries to ride out the global economic downturn given the strength of its government finances," Cooper said.