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Monday, March 4, 2024

Abu Dhabi Achieves Net Asset Position Equivalent to 336% of GDP

Abu Dhabi has achieved a net asset position equivalent to approximately 336% of its gross domestic product (GDP) in 2023, providing a robust buffer against external shocks, according to S&P Global Ratings. The rating agency affirmed ‘AA/A-1+’ sovereign credit ratings for Abu Dhabi, citing proactive policymaking. An increase in OPEC+ production targets in 2024 is expected to support real GDP growth and further strengthen the government’s fiscal position.

Economic Overview and Growth Projections

Abu Dhabi’s real GDP, which experienced a 9.3% growth in 2022, reaching Dh1.14 trillion, is projected to mildly contract by 0.4% in 2023 due to OPEC+ oil production cuts. However, a rebound of 4.5% is anticipated in 2024, bringing the GDP to Dh1.09 trillion. S&P emphasizes the stability of Abu Dhabi’s fiscal and external positions in the next two years, driven by prudent policymaking and assumptions in the hydrocarbon sector.

Fiscal Strength and Net Asset Position: GDP

S&P highlights Abu Dhabi’s exceptional strength in its net asset position, providing a crucial buffer against oil price volatility and geopolitical uncertainty. The stable outlook is based on expectations that fiscal and external positions will remain robust. The rating agency suggests the possibility of a rating downgrade if there is a significant deterioration in the government’s balance sheet and net external asset position.

Debt Management and Production Outlook

Abu Dhabi is projected to avoid deficit financing until 2026, and government gross debt is expected to decrease from about 16% of GDP in 2023 to around 13% in 2026. The rating agency anticipates annual external debt issuance of about $2 billion to maintain a market presence.

The medium-term outlook includes an increase in oil production as OPEC+ quotas are lifted, with the state-owned Adnoc expected to increase capacity to 5.0 million barrels per day by 2027.

Inflation, Geopolitical Stability, and Banking Sector

Inflation in Abu Dhabi, which rose to 5.6% in 2022, is projected to slow sharply to 0.2% in 2023. S&P expects limited impact from regional geopolitical tensions, emphasizing continued domestic stability. With a population of around 3.3 million, GDP per capita is expected to reach $84,900 in 2023. The non-oil sector’s recovery is driving higher lending growth, with marginal deterioration in banks’ asset-quality indicators expected.

Conclusion and Resilience

Abu Dhabi’s economic prosperity, heavily reliant on oil sector revenue, positions it with substantial buffers against potential external challenges. S&P acknowledges the emirate’s resilience and emphasizes its global standing as a significant crude petroleum exporter.

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