The introduction of corporate income tax will also raise government revenues from 2025, rating agency says
Moody’s Investors Service has maintained the UAE’s ‘Aa2’ long-term local and foreign currency issuer ratings with a “stable outlook” as the Emirates boosts non-oil sector growth and bolsters continuing economic diversification efforts.
“Aa” ratings are considered high-quality and subject to very low-credit risk.
“The rating affirmation is underpinned by Moody’s assessment that the UAE federal government’s debt level will remain very low, supported by its continued adherence to balanced budget targets and limited spending needs due to the scale of fiscal decentralisation within the country,” the agency said in a report on Tuesday.
The stable outlook of the Arab world’s second-largest economy also reflects efforts by the UAE government “to expand non-hydrocarbon revenue, promote the development of non-hydrocarbon sectors and attract foreign businesses and talent”, it said.
The UAE economy is estimated to have grown by 7.6 per cent last year, the highest growth in 11 years, after expanding by 3.9 per cent in 2021, according to the UAE Central Bank.
UAE government revenue rose by about 7 per cent to Dh143.1 billion ($39 billion) in the fourth quarter of 2022, the Ministry of Finance said last week.
Business activity in the UAE’s non-oil private sector economy also grew at its strongest pace in four months in February.
The seasonally-adjusted S&P Global purchasing managers’ index reading climbed to 54.3 last month, from 54.1 in January, well above the neutral 50 mark that separates growth from contraction.
Moody’s expects the government to continue delivering balanced budgets even as it increases spending from a narrow base.
“The increase in expenditure is supported by a corresponding increase in revenue, as robust growth in non-hydrocarbon economic activity will contribute to higher collection of value-added tax … while the ongoing inflow of businesses, expatriates and digital nomads will increase the collection of services fees,” it said.
The introduction of corporate income tax, effective on June 1, will also raise government revenue from 2025, Moody’s said
The economic diversification progress in the UAE is relatively advanced compared to its peers in the GCC, it added.
The UAE’s rapid reopening after the Covid-19 pandemic, recent changes to its visa regime allowing expatriates to obtain longer term visas more easily and attracting remote workers, and changes to the work week from Monday to Friday have also enhanced its international appeal.
Momentum in the development of non-oil sectors could “accelerate and strengthen the UAE’s credit profile” beyond Moody’s expectations as a result of shifts in work practices and business strategies post-pandemic, it said.
“This would reduce the country’s exposure to hydrocarbon sector developments beyond what the rating agency currently assumes.”
Separately, Moody’s affirmed Abu Dhabi’s long-term local and foreign currency issuer ratings at Aa2 with a stable outlook.
Moody’s expects Abu Dhabi’s balance sheet to remain “very strong” and its net creditor position to be “very large for the foreseeable future,” providing significant policy buffers and shock absorption capacity.
The emirate’s government financial assets constitute a substantial share of gross domestic product, among the largest across sovereigns Moody’s rates, and the assets have consistently grown through oil price cycles, the agency said.
Based on Moody’s oil price assumptions of $85 per barrel this year and $83 per barrel in 2024, Abu Dhabi is likely to run sizeable fiscal surpluses of an average of 7.3 per cent of GDP over the two years, compared to a surplus of 10.3 per cent last year.
Abu Dhabi’s debt will also remain low, supporting its net creditor position, the agency said.
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