Moody’s Investors Service has affirmed the UAE’s long-term local and foreign currency issuer ratings at ‘Aa2’ with a ‘stable outlook’. This comes as the UAE continues its efforts to diversify its economy and stimulate the non-oil sector, which is driving growth, reported by Moody’s. ‘Aa’ ratings are considered high-quality and carry very low credit risk. ‘Aa2’ is the third-highest rating on Moody’s scale.
“The affirmation reflects our expectation that the federal government’s debt burden will remain very low, supported by its continued commitment to a balanced budget policy and its limited spending needs through fiscal decentralization,” the rating agency said.
UAE Credit Profile
The rating also reflects Moody’s expectations for continued strong support from the Abu Dhabi government, which plays a key role in the UAE federation. “We expect the UAE’s credit profile to continue to benefit from Abu Dhabi’s very strong balance sheet, which supports the sovereign’s ability to absorb shocks,” Moody’s said. “While the UAE faces long-term risks from the carbon transition and ongoing regional geopolitical tensions, effective policies are mitigating these challenges, including by promoting economic diversification.” The UAE’s economy grew by 3.8% in the first nine months of 2024, with growth driven by strong expansion in non-oil sectors. The UAE’s real gross domestic product rose to 1.32 trillion dirhams ($359.4 billion) in the nine months to the end of September. The non-oil economy grew by 4.5% annually to 987 billion dirhams, accounting for almost 75% of the country’s economic activity, while the oil sector accounted for the rest.
The UAE, the Arab world’s second-largest economy, is focusing on diversifying its economy away from oil by developing sectors such as technology, manufacturing, tourism, trade and innovation. The country has introduced several reforms, including long-term residency visas and new visa categories to attract more talent, TheNational reported. In September last year, the UAE Central Bank said it expected the country’s economy to grow by 4% last year, up from a June estimate of 3.9%, thanks to stimulus in the non-oil sector. Growth will also be supported by economic agreements the country has signed with its global trading partners, the regulator said at the time.
UAE’s attractiveness to foreign investment
The UAE’s foreign trade performance continues to impress, with non-oil trade reaching a new high of AED 3 trillion last year. This figure is 14.6% higher than the previous year, reflecting the UAE’s growing economic horizons beyond the oil and gas sector. In February, Sheikh Mohammed bin Rashid, the UAE’s vice president and ruler of Dubai, highlighted the importance of the Comprehensive Economic Partnership Agreements (CEPAs) signed with countries ranging from Colombia to Australia. These agreements, he said, have added AED 135 billion to non-oil trade with these partners, up a whopping 42% year-on-year.
Cepas, a contactless electronic wallet standard designed to reduce trade tariffs and remove bottlenecks in the supply chain, is set to provide an additional boost to growth. The program is expected to boost national exports by 33% and add more than 153 billion dirhams to the country’s economy by 2031. Moody’s, a rating agency, specifically notes the federal government’s efforts to diversify revenues and expand non-hydrocarbon sectors, as well as creating a favorable environment for foreign investment and talent. All of this, according to the agency, makes the UAE’s credit profile even stronger and confirms the stability of the country’s economic development. “This potential is offset by negative credit risks associated with the UAE’s exposure to regional geopolitical tensions, which could disrupt the strong momentum of economic diversification and weigh on its long-term growth prospects,” the agency said.