Abu Dhabi's net asset position hits 336% of GDP

Abu Dhabi's net asset position has surged to about 336 per cent of its gross domestic product in 2023, which alongside “proactive policymaking” comfortably cushions it from external shocks, S&P Global Ratings said.

Affirming 'AA/A-1+' sovereign credit ratings on Abu Dhabi, the rating agency said an increase in Opec+ production targets in 2024 should support an acceleration in real GDP growth and further strengthen the government's fiscal position.

Abu Dhabi’s real GDP, which grew 9.3 per cent in 2022 to Dh1.14 trillion, is expected to record a mild contraction of 0.4 per cent in 2023 due to the Opec+ agreement to cut oil production, and rebound 4.5 per cent in 2024 to Dh1.09 trillion, S&P said.

“The stable outlook reflects our expectation that Abu Dhabi's fiscal and external positions will remain strong over the next two years, amid continued prudent policy making and our hydrocarbon sector assumptions. We could lower the ratings if Abu Dhabi's strong government balance sheet and net external asset position deteriorate materially,” S&P said.

The rating agency said given the strong fiscal and external positions, the exceptional strength of the government's net asset position provides a buffer “to counteract the effects of oil price swings and geopolitical uncertainty in the Gulf region on economic growth, government revenue, and the external account.”

S&P said Abu Dhabi would not require deficit financing over the period to 2026. “Nevertheless, on top of refinancing maturing debt, we assume the government will issue external debt of about $2 billion annually to maintain a presence in the market. Government debt repayments will average about $3 billion. As a result, we expect government gross debt to fall toward 13 per cent of GDP in 2026 from about 16 per cent in 2023.”

The rating agency expects Abu Dhabi's oil production to increase over the medium term as Opec+ quotas are lifted and state-owned oil producer, refiner, and distributor Adnoc increases its capacity to 5.0 million barrels per day (bpd) by 2027 from about 4.0 million bpd. “Notwithstanding this assumption, we expect oil production to fall to about 2.9 million bpd on average in 2023 based on the October 2022 Opec+ announcement, following an average of 3.1 million bpd in 2022. We expect oil production to rise again in 2024 (3.22 million bpd) and 2025 (3.32 million bpd), although given the capacity expansion plans, there is upside to these production levels,” S&P said.

Inflation in the emirate increased to 5.6 per cent in 2022, is slowing sharply in 2023, and is estimated 0.2 per cent for the full year, largely due to a decline in transport costs given the fall in oil prices. In 2022, higher oil prices fuelled an increase in transport costs (26.2 per cent) with restaurants and hotels (10.8 per cent), recreation (8.5 per cent), and food (8.8 per cent).

S&P expects regional geopolitical tensions will, on balance, have a limited effect on Abu Dhabi, amid continued domestic stability.

With a population estimated at 3.3 million, about 20 per cent of which are UAE nationals, Abu Dhabi's GDP per capita is expected to rise to $84,900 in 2023. Abu Dhabi derives about 50 per cent of its real GDP directly from the oil sector, and the emirate has accumulated comfortable buffers against potential external shocks.

“Oil sector revenue is the source of Abu Dhabi's significant economic prosperity, and the emirate has accumulated comfortable buffers against potential external shocks. In absolute terms, the UAE is the sixth largest crude petroleum exporter in the world. Its proven crude reserves are the fifth largest within Opec, and the highest of all Opec members on a per capita basis,” the S&P report said.

The rating agency noted that the non-oil sector's recovery has led to higher lending growth in 2023, which is expected to continue through 2024. “We think deterioration of banks' asset-quality indicators will be marginal, and profitability will continue to improve on the back of higher interest rates.”

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