The UAE’s finances are strong enough to withstand any major oil price drop, Moody’s Investors Service said in its annual credit check report on Tuesday.
Moody’s gave the country’s federal government and economic strength a high Aa2 rating. It also said Abu Dhabi in particular had the financial reserves to help the country overcome an oil price slump.
“Even if oil prices were to fall below $30 per barrel, the Abu Dhabi government has recourse to a large stock of offshore financial assets,” said Tristan Cooper, a vice president and senior analyst at Moody’s.
Cooper, who compiled the report, added: “While the full scale of these assets has not been revealed to Moody’s, they are known to be worth more than twice the value of the emirate’s projected 2008 GDP or more than $280bn. This is after accounting for recent sharp declines in global equity markets.”
But on a less positive note, the report said the UAE’s still developing institutions lag behind some other similarly and higher rated countries.
It also said the UAE’s susceptibility to event risk is moderate before expressing concern about its volatile regional political environment.
“The vulnerability of the federal government’s finances to economic and financial shocks would be felt mainly through its domestic contingent liabilities, which we consider to be extensive,” Cooper added.
“However, they are still rather moderate in relation to the size of the Abu Dhabi government’s financial assets, which are ultimately the main pillar of support for the federal government’s Aa2 rating.”
Several factors were considered when compiling the report, including economic and institutional strength, the government’s financial muscle and its susceptibility to event risk.
Moody’s last assessment of the UAE government occurred 18 months ago on July 9, 2007 when the organisation upgraded the country’s ratings to Aa2 from Aa3. The ratings have remained unchanged since then.
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