Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
Fitch Ratings has affirmed Abu Dhabi’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘AA’ with a Stable Outlook, reflecting the emirate’s exceptional fiscal and external strength despite elevated geopolitical tensions in the region. The agency said Abu Dhabi’s sovereign rating is supported by its high GDP per capita, low government debt, and significant sovereign net foreign assets.
The rating assesses Abu Dhabi’s ability and willingness to repay its foreign-currency-denominated debt over the long term. The ‘AA’ rating is the second-highest rating category, just below ‘AAA’, indicating very high credit quality and very low risk of default. The Stable Outlook implies that Fitch does not expect a change to Abu Dhabi’s rating in the next 12 to 24 months.
In its latest assessment released on Monday, Fitch noted that Abu Dhabi’s large fiscal and external buffers position it well to absorb short-term disruptions, including those potentially arising from current military conflicts involving Iran, Israel, and the United States. Fitch assumed that the conflict will not expand beyond the principal actors or persist beyond a few weeks.
Fitch projects that Abu Dhabi will record a fiscal surplus of 7% of GDP in 2025, down from 9.9% in 2024, with the decline attributed to lower oil prices and increased, though still modest, spending. The forecast assumes a Brent oil price of $65 per barrel and production of 3.2 million barrels per day. The surplus is expected to widen again to 8% in 2026 as oil production rises and corporate tax revenues begin to flow in. Excluding investment income, the surplus is estimated at 3.1% in 2025 and 4.3% in 2026.
Abu Dhabi’s fiscal breakeven oil price remains low at $42.6 per barrel (or $54.3 excluding investment income), which underscores the resilience of its public finances. Fitch highlighted the emirate’s policy flexibility, including the ability to adjust spending or increase dividends from ADNOC operations. Public spending remains contained, with expenditure in 2024 still below 2019 levels, and significant spare oil capacity can be deployed if required.
A key strength of the emirate’s credit profile is its exceptional balance sheet. Fitch estimates sovereign net foreign assets at 255% of GDP at end-2024 — the highest among its rated peers. Surpluses from 2024 were channelled to strategic government-related entities such as ADQ and Mubadala, and similar allocations are anticipated in the coming years. Some funds are also expected to support MGX, an AI investment venture co-owned by Mubadala and G42.
Government debt remains low at 17.4% of GDP at end-2024 and is forecast to edge up slightly to 18.2% in 2026. This modest increase is attributed to local currency issuance aimed at deepening the domestic debt market, supported by high liquidity in the banking sector. Fitch also expects continued borrowing by government-related entities (GREs) to fund development projects, but notes that GRE asset sales and the reallocation of fiscal surpluses will limit any excessive rise in liabilities.
While Abu Dhabi’s GRE debt was estimated at 48.3% of GDP in 2023, Fitch considers these contingent liabilities to be manageable, given the emirate’s ample buffers, the profitability of GREs, and robust non-oil growth outlooks. GREs are expected to gradually increase borrowing to support the expansion of the non-hydrocarbon economy through projects including AI data centres, petrochemical facilities, and tourism infrastructure.
Real GDP growth in 2024 was 3.8% but non-oil growth was a strong 6.2%. With production quotas expected to unwind, Fitch forecasts headline growth to reach 6.3% in 2025 and 4% in 2026. Non-oil growth is anticipated to remain robust, driven by major GRE-led investments and a growing population.
Fitch assigns Abu Dhabi an ESG Relevance Score of ‘5[+]’ for Political Stability and Rights, Rule of Law, Institutional Quality, and Control of Corruption. These high scores reflect the emirate’s strong record of domestic political stability, effective governance, and low levels of corruption, as captured in the World Bank’s Governance Indicators.
The Country Ceiling for Abu Dhabi remains at ‘AA+’, two notches above the UAE’s Long-Term IDR of ‘AA-’. Fitch justifies this ceiling on the basis of strong financial buffers, a low risk of capital controls, and efforts to build a UAE dirham yield curve to reduce deposit dollarisation.
