Asset buffers and fiscal discipline protect Abu Dhabi from external shocks, says finance head

The government is focused on maintaining a resilient balance sheet through returns on assets and optimising spending, chairman of Department of Finance says

Abu Dhabi's economy can withstand global economic headwinds. Courtesy Abu Dhabi Government Media Office

Abu Dhabi’s economy is "well cushioned" from external shocks such as the coronavirus pandemic and volatility in oil markets, the chairman of the Abu Dhabi Department of Finance said on Sunday.

The emirate has also raised $7 billion (Dh25.7bn) through a bond offering which showed strong international demand. It was more than six times oversubscribed, with 90 per cent of orders coming from outside the Middle East, despite concerns about the global economy. Jassim Al Zaabi said this was a sign of investor confidence in the emirate.

Abu Dhabi, home to about 6 per cent of the world’s proven oil reserves, has enough assets to "safeguard economic growth in the long-run", he said. This includes the Abu Dhabi Investment Authority, Mubadala Investment Company, Abu Dhabi National Oil Company and the Abu Dhabi Developmental Holding Company (ADQ).

"I can confidently say that we are well cushioned," he told The National. "Abu Dhabi's resilient economy is the product of decades of fiscal prudence. Over the past decades, time-and-time again, we have proven that we can withstand global macroeconomic headwinds."

Abu Dhabi's net asset position exceeds 250 per cent of its gross domestic product, S&P Global Rating said in March, when it affirmed the emirate's "AA/A-1+" rating.

Maintaining a resilient balance sheet, through sustainable returns on assets and optimising spending while sustaining budgetary discipline is the top priority for the finance department, he said.

“Like everyone else in these times, as a precautionary measure we are looking at our spending, but our focus is on rationalising in areas that do not impact the economic climate,” Mr Al Zaabi said.

“Our forward-looking debt management strategy is also a crucial pillar of the fiscal plan, and we will continue to evaluate options under the funding sources available to us.”

The global economy is facing its deepest recession since the Great Depression in the 1930s and is projected to shrink 3 per cent in 2020, the International Monetary Fund said earlier this month. The bleak forecast from the Washington-based lender is a more than 6 percentage point revision, relative to its October 2019 estimates and updated January 2020 projections of a 3.3 per cent expansion in global gross domestic product. The outlook now is worse than the 2008 financial crisis and the IMF does not expect recovery to take place before 2021.

Governments and central banks across the globe have poured an estimated $8 trillion (Dh29.4tn) into the global economy to ensure financial stability and soften the impact of the outbreak. Oil prices have declined more than 50 per cent since the beginning of this year, which has added to economic woes globally.

To mitigate the impact on its economy, the UAE was the first in the Middle East and North Africa to roll out Dh282 billion in fiscal and monetary support, providing zero interest funding to banks to boost lending growth in the country. The government, in addition, has implemented a variety of other initiatives that range from discounted utility bills to waivers of fees to buttress the economy.

The emirate’s Department of Finance last week partnered with First Abu Dhabi Bank, Abu Dhabi Commercial Bank and Abu Dhabi Islamic Bank to expand its SME Credit Guarantee Scheme, as it looks to help smaller business withstand economic fluctuations.

The government is guaranteeing up to 80 per cent of the value of loans extended to SMEs. The move allows access to renewable financing options for working capital for a three-month period and term loans of up to four years.

“We remain firmly focused on further accelerating the development of our thriving non-hydrocarbon sector,” Mr Al Zaabi said. “The stimulus packages launched by the government of Abu Dhabi and the Central Bank of the UAE have created optimal conditions for companies to weather the current conditions.”

One of those measures, a Dh50bn support facility for banks to help businesses and individuals through the Covid-19 outbreak has already been 30 per cent utilised, the Central Bank of the UAE said on Sunday.

The funds raised from the bonds will help with Abu Dhabi's plans to offset the decline in revenue from lower oil prices. The bonds were issued as part of its debt management strategy to help the emirate diversify its funding options.

“We will continue to evaluate options under the existing issuance programme,” Mr Al Zaabi noted.