Ras Al Khaimah is likely to see a budget deficit this year following a small surplus in 2015, Fitch Ratings has said in a new report.
The ratings agency said it projects a budget deficit of 1.4 percent of GDP in 2016 versus a surplus of 0.3 percent last year. in 2015.
It added that it estimates real GDP growth to have slowed to 3 percent in 2015, after 7.4 percent in 2014, with 4 percent growth per year forecast in 2016 and 2017, driven by tourism, the export of construction materials, and activity within the free zones.
Fitch said it expects smaller increases in revenue in free trade zones, real estate and healthcare, following lower-than-budgeted revenue in these categories in 2015.
Fitch also said it believes that expected increases in hotel capacity, occupancy, and room rates imply a smaller-than-budgeted increase in tourism revenues.
The projections come as Fitch affirmed Ras al Khaimah’s long-term foreign and local currency issuer default ratings at ‘A’ with stable outlook.
It said the ratings balance the benefits of Ras al Khaimah’s membership of the UAE, a low debt/GDP ratio and solid fiscal performance against lingering weaknesses in data quality and the macro policy framework.
The agency added that headline government debt ratio will fall to 16.6 percent in 2016 from 21.9 percent in 2015, as no new debt is incurred and a $400 million sukuk was repaid using proceeds from an issue in 2015.
Spending including net equity investments are projected to rise 33 percent, primarily on the back of capital spending projects carried over from 2015 that were delayed by the introduction of new approval procedures, Fitch said.
Ras al Khaimah, which has a population of about 345,000 people, does not export oil, but as a major exporter of construction materials to the GCC, it is indirectly affected by lower oil prices through a reduction of construction spending in the region.
Fitch said this risk is somewhat mitigated by a small direct exposure to Saudi Arabia, which has seen the biggest cut-backs in construction spending; other GCC states have maintained it or have only cut back gradually.
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