Abu Dhabi – Mubasher: Credit ratings agency Moody's said in a recent report that despite the fact it does not expect the return of surpluses to the UAE government on the medium-term, it expects that the government will not reduce the size of its budget deficit for 2016-2017 and projects that oil prices will remain at low levels in the coming years.
"Despite the UAE’s relatively high exposure to hydrocarbons, which on average represented 36.4% of nominal GDP and 56.3% of exports (excluding re-exports) during 2010-2015, we do not expect the new oil price regime to dramatically alter the economy’s medium-term real growth trajectory," Moody's said in a statement.
The hydrocarbon sector is expected to contribute positively to real growth in 2016 as the Gulf country increases oil production. Abu Dhabi National Oil Company (ADNOC), the UAE's flagship oil producer, recently reiterated its commitment to boosting productive capacity from 3.0 million to 3.5 million barrels of crude oil per day by 2018.
The decision to increase the capacity was made in 2014 in response to growing domestic demand for processed hydrocarbons which has so far been met with imported gasoline. The UAE’s refining capacity is set to nearly double from the starting level of 500,000 barrels of oil equivalent per day, the report said, adding that "a combination of greater extraction and refining capacity will allow the UAE to maintain stable volumes of crude oil exports, while significantly reducing imports of refined products."
Meanwhile, the non-oil economy decelerated from 5.5% in 2014 to 3.7% real growth in 2015, with the relative slowdown likely to extend into 2016-2017, followed by a gradual recovery in 2018-2019, Moody's highlighted.
Megaprojects will also continue to support non-residential construction activity, which will increase in the years leading to the World Expo set to take place in Dubai in 2020. Furthermore, trade will continue to benefit from lifted sanctions on Iran, and growing tourist and transportation traffic.
In May this year, Moody's confirmed the UAE's Aa2 rating and changed the outlook to negative from stable. A similar action was taken for the UAE's capital and largest emirate, Abu Dhabi, which is assumed to fully behind the UAE's federal government.
The main driver behind the rating confirmation is Abu Dhabi's economic and fiscal resilience to lower oil prices through its very large fiscal buffers in the form of diversified offshore investments, the research firm stated in its report.
"The negative outlook reflects the lack of clarity around the formulation and implementation of government policies to arrest and reverse the large deficits and the deterioration in the net asset position from lower oil prices," Moody's highlighted.
