Mubasher: Capital Intelligence Ratings (CI) has affirmed the United Arab Emirates' (UAE) Long-Term Foreign and Local Currency Ratings at 'AA-', and its Short-Term Foreign and Local Currency Ratings at 'A1+', with a 'Stable' outlook, according to a recent report.
The outlook balances the strength of the external position and availability of financial assets against institutional weaknesses, reliance on hydrocarbon revenues, and susceptibility to exogenous shocks, such as periods of subdued oil prices, declines in international trade or geopolitical risk, the report explained.
Real output continued its positive growth, albeit at a slower pace, the report noted.
“Relatively weak hydrocarbon prices combined with slower oil output growth, a decline in government spending, and a slowdown in global trade caused growth to moderate to 2.7% from 3.8% in 2015.”
“GDP is now on course to grow by an average of 3% over 2017 to 2019, based on the assumption that non-hydrocarbon growth will average 3.3%, underpinned by rising domestic public investment,” the report indicated.
The outlook for growth remains subject to growing risks arising from elevated geopolitical risk factors in view of the growing tension with Qatar and the uncertainties concerning the economic consequences for the UAE.
Inflation eased to 1.8% from 4.1% in 2015, reflecting softer domestic demand and declining rents, usually a sign in the UAE context of weakening economic conditions/
Budget deficit widened to 4.1% of GDP from 3.4% in 2015 as lower than expected oil revenues offset the positive impact of the implemented fiscal consolidation measures.
Based on an assumption that oil prices will average $55 per barrel over the next two years and that the government will press ahead with fiscal reforms, especially the introduction of VAT in 2018, the consolidated budget deficit is expected to narrow to 2.9% of GDP in 2018 and then further to around 1.2% of GDP in 2019, the report stated.
CI Ratings also said that while it views the government's commitment to fiscal reform as positive, this is in the current context of a limited non-hydrocarbon tax base and ongoing delay in imposing VAT.
