Fitch affirms Abu Dhabi at ‘AA' with stable outlook as fiscal strength, surpluses endure

Arab News

24-06-2025

RIYADH: Abu Dhabi's long-term foreign-currency rating has been affirmed at 'AA' with a stable outlook by Fitch, supported by the emirate's robust fiscal surpluses, vast sovereign assets, and low debt levels.
The US-based rating agency cited Abu Dhabi's strong balance sheet, supported by large sovereign assets and steady budget surpluses, but noted constraints such as hydrocarbon reliance, a still-developing policy framework, and weaker governance compared to peers.
This follows S&P Global's recent assignment of a 'AA/A‑1+' with a stable outlook for its foreign and local currency sovereign credit ratings to the UAE, citing the country's strong fiscal and external positions. The agency also noted that the UAE's sizable asset cushion would help shield it from oil price volatility and regional geopolitical tensions.
Despite these structural limitations, Abu Dhabi's fiscal position remains one of the strongest among Fitch-rated sovereigns. At the end of 2024, government debt stood at 17.4 percent of gross domestic product, well below the peer median of 48.8 percent, and is expected to rise only marginally to 18.2 percent by 2026 due to local currency issuance aimed at supporting domestic debt market development.
In its latest report, Fitch stated: 'We project a budget surplus of 7.0 percent of GDP in 2025 (3.1 percent excluding investment income) based on Fitch's oil price (Brent USD65/b) and production (3.2m b/d) forecasts, and some spending under-execution, down from 9.9 percent in 2024.
It added: 'For 2026, higher oil production, modest spending growth and the start of corporate income tax receipts will widen the surplus to 8 percent (4.3 percent excluding investment income).'
The report noted that Abu Dhabi's fiscal breakeven oil price is estimated at $42.60 per barrel in 2025, or $54.30 excluding investment income, highlighting the emirate's resilience to oil market fluctuations.
If oil prices decline, the government can maintain economic stability by adjusting spending or drawing on dividends from Abu Dhabi National Oil Co.
According to Fitch, sovereign net foreign assets are projected to reach 255 percent of GDP by the end of 2024, with a substantial portion of surpluses allocated to government-related entities such as Abu Dhabi Developmental Holding Co. and Mubadala. Some funds are also expected to support MGX, a joint venture focused on artificial intelligence investments.
Fitch added that contingent liabilities stemming from government-related entities debt, estimated at 48.3 percent of GDP in 2023, remain manageable given their asset bases, profitability, and the state's fiscal strength.
Borrowing by government-related entities is anticipated to rise gradually as Abu Dhabi accelerates investment in non-oil sectors.
The agency also highlighted strong non-oil growth, which reached 6.2 percent in 2024. Overall GDP growth stood at 3.8 percent last year, tempered by lower oil output in line with OPEC+ quotas.
Fitch forecasts headline growth to rise to 6.3 percent in 2025 and 4 percent in 2026, driven by easing oil production constraints and increasing population levels.
The ratings agency warned that elevated geopolitical risks, particularly regional tensions involving Iran, Israel, and the US, pose a downside risk.
'A regional conflagration would pose a risk to Abu Dhabi's hydrocarbon infrastructure and to Dubai as a trade, tourism and financial hub. Gulf maritime trade is a vital interest of the UAE,' the report said, though it added that the emirate's large reserves provide protection against short-term disruptions.
Fitch's sovereign rating model assigned Abu Dhabi a score equivalent to 'AA+.' However, the agency applied a negative qualitative adjustment of one notch due to the emirate's high dependence on oil revenues and geopolitical vulnerability.
The UAE's country ceiling was affirmed at 'AA+,' two notches above the sovereign rating, supported by strong constraints against capital controls, a dollarized financial system, and ample external buffers.
The agency stated that a downgrade could be triggered by a significant erosion of fiscal and external positions or a geopolitical shock that undermines macroeconomic stability. Conversely, an upgrade would require structural improvements such as reduced oil dependence and enhanced governance metrics.