A. SREENIVASA REDDY (ABU DHABI)
S&P Global Ratings affirmed Abu Dhabi’s ‘AA/A-1+’ sovereign credit ratings for both long-term and short-term borrowings.
S&P Global Ratings’ AA rating for long-term foreign and local currency borrowings, which is one notch below its highest AAA rating, indicates very high credit quality. It is stronger than the A and BBB categories, which are also considered investment-grade but carry relatively higher risk than the AA category.
For short-term borrowings, Abu Dhabi holds an A-1+ rating, which is the highest level on S&P’s short-term scale, followed by A-1, A-2 and A-3. These ratings measure the government’s ability to meet short-term financial obligations.
S&P Global Ratings also maintained an 'AA+' transfer and convertibility assessment on Abu Dhabi. This refers to the agency’s view of the risk that authorities could restrict the conversion of local currency into foreign currency or limit the transfer of funds abroad. An AA+ score means the risk of such restrictions is extremely low and just one notch below the highest level of AAA.
“The stable outlook reflects our view that Abu Dhabi’s large fiscal and external buffers should provide a buffer for policy manoeuvring in very adverse geopolitical developments or unfavourable hydrocarbon sector dynamics, including disruption in oil production or exports,” S&P Global Ratings said.
The rating agency noted that the ongoing disturbances in the region affecting the supply of oil and other commodities could potentially push hydrocarbon prices higher, which may benefit major oil exporters such as the UAE if export volumes remain stable.
“The Abu Dhabi Crude Oil Pipeline to Fujairah can deliver about 50% of the emirate's oil exports directly to the Fujairah terminal on the Gulf of Oman, bypassing the strait. We consider a prolonged blockage of the strait unlikely,” S&P Global Ratings said.
The agency also noted that geopolitical tensions could lead to capital outflows, but said the UAE’s banking system remains well positioned to cope with such pressures.
“The geopolitical tensions in the region also pose a risk of capital outflow. But banks in the UAE maintain strong net external asset positions and are therefore well positioned to cope with outflows,” the agency said.
S&P Global Ratings highlighted the Abu Dhabi government’s strong fiscal and external positions as key strengths supporting the ratings.
“The exceptional strength of the government’s net asset position provides a significant buffer to external shocks. The emirate has also shown a consistent capacity to navigate periods of stress, underpinned by a solid record of prudent policymaking,” the agency said.
The rating agency estimates that the government’s net asset position will exceed 300% of GDP in 2026, providing a substantial cushion against economic or financial shocks.
Abu Dhabi recorded a fiscal surplus of 6.7% of GDP in 2024, consistent with 2023 levels. S&P expects the surplus to narrow to about 3.3% of GDP during 2025–2026 before widening again to around 3.9% on average during 2027–2029, based on oil price assumptions of $65 per barrel and continued expenditure discipline of about Dh300 billion annually.
The emirate is also expected to start collecting corporate income tax in the second half of 2026, which S&P estimates could generate Dh8 billion to Dh10 billion annually in additional revenue.
As part of efforts to develop the UAE’s domestic debt capital markets, Abu Dhabi is preparing to issue local currency debt worth around Dh20 billion in 2026, which will help establish a domestic yield curve and support the growth of the country’s debt market.
S&P Global Ratings also assessed Abu Dhabi’s contingent liabilities—potential obligations that may arise from government-related entities (GREs)—as limited relative to its large asset base. The debt of the emirate’s GREs, excluding government-owned banks, is estimated at about 20% of GDP in 2026.
The rating agency expects inflation in the emirate to remain modest at around 1.5% through 2029, supported partly by the UAE dirham’s peg to the US dollar and administered prices for some essential goods.
The UAE banking sector is also expected to remain resilient, supported by precautionary provisioning, strong capital buffers and a favourable economic outlook for the non-oil sector over the next two years.
Banks remain in a net external asset position, which means their foreign assets exceed foreign liabilities, helping them cope with potential capital outflows if geopolitical tensions intensify.