S&P affirms Abu Dhabi, RAK ratings on strong fiscal base
Abu Dhabi's rating was confirmed with a stable outlook, underpinned by what S&P describes as one of the strongest government balance sheets globally and ongoing initiatives to strengthen the emirate's non-oil economy.
Ras Al-Khaimah's rating was similarly upheld, thanks to strong tourism-driven momentum and sustained investments in infrastructure.
The UAE's overall economic performance further supports these ratings. According to S&P, the nation's gross domestic product rose by 3.8 percent year on year in the first nine months of 2024. The non-oil sector was the main contributor, expanding by 4.5 percent to 987 billion dirhams ($268.74 billion).
As the capital, Abu Dhabi plays a central role in the UAE's macroeconomic profile. 'Abu Dhabi has a very wealthy economy, but growth rates remain volatile because about 50 percent of economic output comes from the hydrocarbon sector,' the report noted.
Looking ahead, the agency forecasts the UAE's economy will remain resilient, projecting 2.5 percent growth in 2025. This outlook is driven by vigorous non-oil activity and increased oil production, with regional geopolitical tensions expected to have limited domestic impact due to the UAE's internal stability.
S&P expects oil production to rise modestly over the medium term, supported by the relaxation of OPEC+ quotas. Output is anticipated to increase from 2.95 million barrels per day in 2023–24 to 3.04 million bpd in 2025, potentially reaching 3.50 million bpd by 2028. With a total capacity of up to 4.85 million bpd and new gas projects underway, the UAE holds significant upside potential for growth and fiscal surplus enhancement.
The report emphasized Abu Dhabi's structural reforms aimed at improving the business climate and attracting foreign investment. These include the introduction of a law permitting 100 percent foreign ownership, liberalized personal and family laws, and the Golden Visa Program, which offers long-term residency to investors, entrepreneurs, and skilled professionals.
Despite regional uncertainties, Abu Dhabi's economic outlook remains secure. A strategic asset in this stability is the Abu Dhabi Crude Oil Pipeline, which allows around half of the emirate's crude exports to bypass the Strait of Hormuz via the Fujairah Oil Terminal. Additionally, substantial fiscal reserves provide a critical buffer against potential financial shocks.
S&P highlighted the emirate's fiscal and external strength, noting that while hydrocarbons account for 70 to 75 percent of government revenues, Abu Dhabi maintains one of the largest net asset positions among rated sovereigns, estimated to reach 327 percent of GDP by 2025.
'At the same time, the UAE government has pledged to make the country carbon neutral by 2050 and plans to invest heavily in alternative energy sources that are both renewable and clean,' the report added.
Smaller emirates like Dubai, Ras Al-Khaimah, and Sharjah are also expected to benefit from federal financial backing, particularly from Abu Dhabi, if necessary. Their combined direct debt is projected to reach about 30 percent of Abu Dhabi's GDP by 2025. Even when accounting for government-related entity debt, Abu Dhabi's balance sheet is expected to remain in a net asset position above 100 percent of GDP.
Due to limited external data specific to Abu Dhabi, S&P used UAE-wide figures to assess the emirate's external standing. The report pointed to significant external assets, primarily managed by the Abu Dhabi Investment Authority, as a core strength.
The UAE's external liquid assets are forecast to exceed its external debt by roughly 215 percent of current account payments over 2025–28. However, gross external financing needs will remain relatively high, at 132 percent.
The Central Bank of the UAE maintains a base interest rate of 4.4 percent, in line with the US Federal Reserve, due to the dirham's peg to the US dollar. Inflation rose slightly to 0.5 percent in 2024 and is expected to remain modest at 1.3 percent through 2028.
Turning to Ras Al-Khaimah, S&P anticipates that economic growth will ease slightly to an average of 3.3 percent in 2025-26, down from an estimated 3.5 percent in 2024, due to less favorable external conditions.
'We expect RAK's fiscal performance to remain strong despite higher infrastructure spending in the next two to three years,' the report stated.
RAK's growth is projected to accelerate to an average of 4.3 percent in 2027-28, driven by key sectors such as tourism, real estate, manufacturing, and mining. Conservative fiscal practices are expected to continue, with budget surpluses averaging 2 percent of GDP from 2025 through 2028.
These surpluses are supported by stable revenues and limited debt, allowing RAK to maintain a net government asset position averaging 21 percent of GDP over the same period. Federal backing remains a financial safety net, easing any potential funding challenges.
RAK posted a fiscal surplus of 2.9 billion dirhams in 2024 — 6.5 percent of its GDP — primarily driven by strong dividends from state-owned firms like RAK Ports and Marjan, solid municipal revenues, and reduced capital spending. Land sales from Marjan are expected to continue supporting fiscal performance, with additional revenues from corporate taxes and hospitality anticipated from 2027 onward. However, fiscal surpluses may moderate as infrastructure spending rises.
S&P concluded that both Abu Dhabi and Ras Al-Khaimah are well-positioned to weather global economic uncertainties. Abu Dhabi's deep fiscal reserves and mature capital markets complement RAK's targeted tourism investments and expanding non-oil economy—together reinforcing the UAE's broader strategy of economic diversification.
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