Abu Dhabi's $13.6bn stimulus signals end of fiscal cuts - Fitch

Ratings agency says stimulus package will support Abu Dhabi's growth recovery, adding that it expects non-oil growth of 3.5% in 2018 and 4% in 2019

Abu Dhabi, United Arab Emirates, June 20, 2018

Abu Dhabi's new economic stimulus programme highlights the winding down of fiscal adjustment in the emirate which was triggered by the 2014 oil price shock, according to ratings agency Fitch.

Fitch said in a new research note that the stimulus will have limited sovereign credit impact given the emirate's strong balance sheet and low fiscal break-even oil price.

The agency said that alongside higher oil prices, the stimulus package will support Abu Dhabi's growth recovery, adding that it expects non-oil growth of 3.5 percent in 2018 and 4 percent in 2019, from 1.8 percent in 2017.

Sheikh Mohammed bin Zayed, Abu Dhabi's crown prince, earlier this month approved a three-year stimulus package worth AED50 billion ($13.6 billion), or around 6 percent of Abu Dhabi GDP.

Objectives include job creation, increasing tourism, and improving private sector development. Full details have yet to be set out and government departments will spend the next three months preparing their spending plans.

To support the private sector and attract investment, they have also been instructed to speed up payments to private sector suppliers and ease licensing requirements and regulations for companies.

Fitch said Abu Dhabi's fiscal break-even oil price is among the lowest for its rated oil producers, estimated at slightly above $60 per barrel, and its fiscal and external positions are among the strongest, with sovereign net foreign assets estimated at 281 percent of GDP last year, and government debt at just 8 percent of GDP.

Fitch has increased its oil price forecasts to $70/bbl for 2018 and $65/bbl for 2019, from $57.5/bbl for both years.

Under these new forecasts, and assuming the gradual ramp-up of stimulus spending, Fitch said it now expects budget surpluses of 3.2 percent of GDP in 2018 and 0.9 percent in 2019, from an estimated deficit of 3.2 percent of GDP in 2017.

Fitch added that it is still not clear to what extent VAT revenue will accrue to the individual emirates of the UAE.

'The decision to adopt a stimulus package during a period of high oil prices suggests that fiscal policy is still not grounded in a medium-term framework, and annual budgets represent only a weak constraint to spending. The overall economic policy-making framework remains a weakness relative to 'AA' category peers outside the GCC region,' the agency noted.