Abu Dhabi’s economy is predicted to stay on track despite the effects of falling oil prices, according to new research.
Credit rating agency Standard and Poor’s (S&P) has just finished a major economic review for the capital of the United Arab Emirates and forecasts a stable future.
The report agreed Abu Dhabi’s economy relied substantially on exporting oil and gas, but pointed out that the government had put measures in place to expand the economy into other sectors.
Prudent government investment and large asset reserves are likely to hedge any oil price fluctuations, said S&P.
“The exceptional strength of Abu Dhabi’s net assets will counter any fall in oil prices,” said the report.
Trade boost as sanctions end
S&P also noted that the government has trimmed spending by 28% without impacting too much on services but by giving less money to the UAE’s federal government.
“Our view is infrastructure spending will bolster economic growth but still expect to see government revenue drop by 29%, resulting in a deficit for 2015,” said S&P.
“Abu Dhabi derives 55% of GDP and 90% of government revenue from oil and gas. Scrapping fuel subsidies is a necessary measure the government has put in place which will see prices at the pumps rise.”
The report also explains that the economy remains underdiversified, but appreciates the government is working to tackle the problem.
One significant geopolitical change in the region that will benefit Abu Dhabi and the UAE is the lifting of sanctions against Iran.
“The estimate is trade between the UAE and Iran will double with the lifting of sanctions,” said S&P.
As a result, S&P has confirmed Abu Dhabi’s credit rating remains the same – ‘AA’ long-term and ‘A-1+’ short-term.
“This is terrific news for Abu Dhabi, especially in the wake of the devaluation of the Chinese yuan and the market volatility we have seen in recent days,” said James Green, Devere Group area manager Abu Dhabi and Qatar.
“Abu Dhabi depends a lot on trade with China – with oil going one way and imports coming from the other.
“To have the economy given the once-over by S&P and to come out with flying colours means a lot to Abu Dhabi and reaffirms how well the government is handling the economy and seeking growth.”