Fitch Ratings expects Abu Dhabi’s real GDP to grow 1.3 per cent growth in 2019, from 1.9 per cent in 2018 which was driven by higher oil production.
The rating agency stated that lower oil prices will underpin a 1.6 per cent of GDP drop in revenue, despite new revenues from VAT revenue amounting to 1.2 per cent of GDP in 2019. Oil and gas contribute around 80 per cent of fiscal revenue, exposing Abu Dhabi to the volatility of hydrocarbons.
Fitch also expects a moderate pick-up of Abu Dhabi's non-oil growth to 1.4 per cent in 2019 and -2.5 per cent in 2020-2021, from 0.6 per cent in 2018, however, a modest expansion of domestic spending will support economic activity and confidence but short-term economic indicators have remained muted in the emirate and the entire UAE.
Abu Dhabi’s long-term growth potential is supported by continued high public sector investments and structural reforms. The UAE has maintained its lead over GCC peers on indicators of Doing Business, coming in at number 16 in the World Bank's 2020 ranking.
The government is undertaking further reforms to facilitate the establishment and operation of private companies in Abu Dhabi, although the emergence of a dynamic non-oil related private sector—which represents a significant diversification of the economy—remains a distant prospect.
Abu Dhabi’s domestic spending will remain stable, reflecting slower-than-expected disbursement of funds related to a three-year AED50 billion—five per cent of GDP—stimulus package. Stimulus spending is expected to remain low in 2019 at less than one per cent of GDP as projects are largely in the awarding phase and AED 10 billion will be in the form of loan guarantees for SMEs.
Fitch expects Abu Dhabi’s budget to slip back into a deficit of one per cent of GDP in 2020 and 2.3 per cent in 2021, as oil prices progressively slide to $60/bbl, oil production remains broadly stable and moderate spending growth resumes.
Abu Dhabi issued $10 billion bond in September 2019, which will raise government debt/GDP to 11 per cent in 2019 from seven per cent in 2018—dirham-denominated bond issuance at the emirate level remains a remote prospect, said Fitch
The emirate’s fiscal financing requirement is projected to be around $36 billion for 2019-2021.
Abu Dhabi’s net foreign assets are estimated to be third-largest among Fitch-rated sovereigns, at 185 per cent of GDP in 2018, government debt is among the lowest at a forecast 11 per cent of GDP at end-2019.