The credit profile of the United Arab Emirates (UAE) is supported by assumptions of unconditional financial support from the Abu Dhabi government, its superior infrastructure, very high per capita income and vast hydrocarbon reserves, Moody's Investors Service said in a report on Friday.
"Our stable outlook indicates that the risks to the UAE's sovereign ratings are broadly balanced," Thaddeus Best, a Moody's Analyst and the report's co-author, said.
"Its credit profile is supported by the stable outlook on the Abu Dhabi sovereign rating and upside potential from diversification efforts, but is constrained by lingering government-related entity contingent liabilities and geopolitical tensions."
The UAE's fiscal reliance on hydrocarbons at an estimated 43 percent of government revenue in 2018 and regional geopolitical tensions are sources of negative credit pressure.
While real GDP growth will remain modest in 2019 due to OPEC production cuts and subdued non-oil sector activity, Moody's expects real GDP growth to accelerate to 3 percent by 2020, supported by the removal of the cuts and looser fiscal policy from Abu Dhabi, which accounts for the largest share of government spending in the UAE.
A decline in contingent liability risks or reduced regional geopolitical tensions would be positive for the UAE's credit profile, particularly if combined with improvements in policy transparency and data availability at the emirate and federal level.
A downgrade of Abu Dhabi's rating would most likely result in a downgrade of the UAE's rating, Moody’s noted.
The following factors would also put pressure on the UAE's rating: the crystallization of large contingent liabilities on the federal or emirates' government balance sheet; an escalation in domestic or regional political risk that threatened to disrupt international trade.
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