Moody’s affirms UAE as Aa2; cuts Saudi, Oman, Bahrain ratings

Global ratings agency Moody’s Investors Service yesterday confirmed the Aa2 long-term issuer ratings of the Government of the UAE.

The agency said that the confirmed Aa2 rating incorporates its view that the ratings of the federal government are linked to those of the government of Abu Dhabi.

The key driver of the ratings confirmation is the emirate of Abu Dhabi's very large fiscal buffers in the form of diversified offshore investments, which will support the UAE's economic and fiscal resilience during a period of lower oil prices and subdued growth, it noted.

The UAE's long-term and short-term foreign- currency bond and deposit ceilings remain unchanged at Aa2 and Prime-1, respectively. The UAE's long-term local- currency bond and deposit ceilings also remain unchanged at Aa2.

Moody’s noted that the UAE’s general government’s debt-to-GDP ratio is low, at around 18 per cent of GDP in 2015, and is expected to remain moderate.

The agency also said that there has been a significant improvement in the leverage position of Abu Dhabi government-related entities, while the debt of Dubai government-owned entities has remained stable.

The rating agency expects that the UAE’s strong fiscal reserves will remain above 130 per cent of the country's GDP over the next few years.

The UAE’s large non-oil economy has diversified and is expected to benefit from renewed investment ahead of Dubai’s World Expo 2020, while Abu Dhabi’s offshore investments offer resilience to lower oil prices.

The agency has, however, assigned a negative outlook to the ratings, a decision that it said reflects uncertainty around the content and implementation of policy responses to the oil price decline.

The UAE's real GDP growth rate remained robust in 2015 at an estimated 3.4 per cent, down from 4 per cent in 2014, it said.

Moody's cuts Saudi, Oman, Bahrain debt ratings

The rating agency cut its debt ratings for Saudi Arabia, Oman and Bahrain as it said low oil prices undermine these government’s finances.

The rating agency downgraded Saudi Arabia's long-term issuer rating by one notch to A1 but gave the kingdom a stable outlook, saying sweeping economic reforms announced by the government last month might stabilise the state budget.

In late April, Deputy Crown Prince Mohammed bin Salman revealed Saudi Arabia's biggest policy shake-up in decades, including tax rises, an efficiency drive and plans to give a bigger role to the private sector.

“The government has ambitious and comprehensive plans to diversify both the economy and its balance sheet which, if even partly successful, should stabilise its credit profile and which could, if achieved, offer a route back to a higher rating level over time,” Moody's said.

However, the agency said it was still uncertain how Saudi Arabia would fund a massive budget deficit averaging 9.5 per cent of gross domestic product between 2016 and 2020, which would require total financing of $324 billion.

“It is not yet clear how this cumulative financing need will be met: while Saudi Arabia's low levels of government debt at 5.8 per cent of GDP in 2015 provide fiscal space, no medium-term funding strategy has yet been announced,” Moody's said.

The agency downgraded Oman by one notch to Baa1 with a stable outlook, and cut Bahrain by one notch to Ba2, with a negative outlook. Both countries lack the huge financial and oil reserves of their neighbours.

While Bahrain can expect support from its ally Saudi Arabia in a crisis, it is likely to find it increasingly hard to borrow in the international markets, Moody’s said.

“The further deterioration in the government's balance sheet, combined with increased external debt issuance from other countries in the region, will lower the supply of external funding, thereby heightening the risk that finance is obtainable only at much less affordable rates for Bahrain, or potentially reduced amounts.”

Moody confirmed the Aa2 ratings of Kuwait and Qatar but gave both of them a negative outlook.

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