The credit ratings agency Standard & Poor’s is forecasting that the Abu Dhabi budget will swing back to a small surplus this year after recording a deficit in 2016 as an expected increase in crude prices makes up for a decline in oil output amid difficult economic conditions.
In its latest sovereign debt ratings for the emirate issued on Friday, S&P said that it expected the Abu Dhabi government’s fiscal balance to stand at a surplus of 0.7 per cent of GDP in 2017, representing a turnaround from an estimated deficit of 3.6 per cent last year.
S&P said that the emirate’s income this year would be constrained by a temporary decline in the amount of oil it drills as part of the UAE’s commitment to an agreement by Opec and non-Opec members in November to trim oil output to shore up oil prices.
And it said that government spending cuts in 2015 and 2016 and a slowdown in the economy because of the oil price crash three years ago would continue to put pressure on non-oil related businesses.
“The oilfield maintenance scheduled in March and April 2017 will cut output to meet the UAE’s commitment to Opec’s agreement,” S&P said. “In addition we expect non-oil activities in the emirate to face headwinds from the appreciation of the real effective exchange rate of the UAE dirham and tightening fiscal and monetary conditions.
The agency said that it expected the government to have more money in its coffers from gradual increases in international oil prices over the coming two years and added that, after a dip this year, it expects the government to maintain oil production capacity at 3 million barrels per day over the next three years.
The ratings agency said that this, alongside the introduction of value added tax in 2018 and new taxes on hotel stays and expatriate rents, would help the Abu Dhabi government post surpluses averaging 4.5 per cent of GDP in 2018-2020.
S&P maintained Abu Dhabi’s AA/A-1 rating with a stable outlook, citing the emirate’s strong fiscal position, rich currency reserves and extremely high GDP per capita, which it estimates at US$75,000 in 2017.
The ratings agency forecast that real economic growth would recover to average about 2.7 per cent “in the coming years”, based on a rising oil price and on the government increasing oil production capacity to 4 million barrels per day by 2021.
S&P’s budget forecasts for Abu Dhabi run counter to those of the rival credit ratings agency Fitch, which last month forecast a 5.9 per cent deficit for Abu Dhabi in 2017, unchanged from last year.
Fitch said that it did not expect the emirate to post a surplus until 2018, when it forecast a 1.5 per cent surplus due to an anticipated recovery in oil prices and the introduction of value-added tax.
Fitch maintained Abu Dhabi’s AA rating with a stable outlook, citing the emirate’s strong fiscal and financial buffers and high GDP per capita.
lbarnard@thenational.ae
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