Abu Dhabi to maintain strong fiscal position in 2017

Standard & Poor’s says government balance will be ‘slightly in surplus’ this year
Abu Dhabi to maintain strong fiscal position in 2017
(Getty Images)
By Sarah Townsend
Sun 05 Feb 2017 02:44 PM

Abu Dhabi’s fiscal balance is expected to register a surplus in 2017, at 0.7 percent of GDP, according to a report from Standard & Poor’s.

In its latest report, the rating agency forecast the emirate would maintain its “extremely strong” net fiscal asset position above 200 percent of GDP over the period 2017-2020 – “one of the highest net government asset ratios among the sovereigns we rate”, it said.

Fiscal adjustment is set to continue at a moderate pace over the period to 2020 following significant spending cuts in 2015-2016 and a drop in oil revenues.

S&P said the general government fiscal balance – including the firm’s estimates of dividends from ADNOC and Abu Dhabi Investment Council (ADIC), and the investment income of assets held by ADIA – would be “slightly in surplus” this year following an estimated deficit of 3.6 percent of GDP in 2016.

The general government budget – which includes revenues from the introduction of value-added tax (VAT) in 2018, is projected to post surpluses averaging 4.5 percent of GDP in 2018-2020.

Abu Dhabi's real economic growth will recover to about 2.7 percent on average in the coming years, said S&P, supported by a gradual increase in oil prices and hydrocarbon revenues from 2018.

The government has announced plans to increase oil production capacity to four million barrels per day by 2021 and heavily invest in expanding downstream activities, the report noted.

However, this year the emirate’s income is expected to be constrained by a temporary decline in the amount of oil it drills as part of the UAE’s commitment to the OPEC agreement in November to trim output and boost prices.

Overall, the Abu Dhabi government’s large net asset position “continues to provide a considerable buffer to mitigate the impact of commodity market volatility on the economy”, according to the report.

S&P is therefore affirming an AA/A-1+ sovereign credit rating on Abu Dhabi – a stable outlook reflecting the agency’s expectation that the economy will remain resilient with fiscal reserves well above 100 percent of GDP.

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