UAE sovereign rating “not threatened” by oil price fall

The high ratings of the federal government of the United Arab Emirates are resistant to the steep fall in international oil prices since July, Moody's Investors Service said in its new annual credit report on the country.
The long-term foreign and local currency issuer ratings of the UAE government are Aa2 with a stable outlook.
"The federal government is fully supported by the government of Abu Dhabi, also rated Aa2," said Tristan Cooper, a Moody's senior analyst and author of the report. Moody's believes that Abu Dhabi's public finances are robust and can withstand the recent drop in international oil prices. The rating agency estimates that Abu Dhabi's fiscal breakeven is at around $30 per barrel.
Even if oil prices were to fall below $30 per barrel, the Abu Dhabi government has recourse to a large stock of offshore financial assets.
While the full scale of these assets has not been revealed to Moody's, they are known to be worth more than twice the value of the emirate's projected 2008 GDP or more than $280 bln. This is after accounting for recent sharp declines in global equity markets.
"Moody's considers the UAE's economic strength rating to be ‘very high’ based on the country's high level of GDP per capita (notwithstanding its enhanced volatility), extensive reserves of oil and gas, and large holdings of offshore financial assets," explained Cooper.
The UAE's institutional strength rating is assessed as ‘high’. This reflects the country's relatively strong ranking on indicators of institutional quality and the government's seemingly solid commitment to repaying its debt. "However, the UAE's institutions are still developing and that their quality continues to lag that of higher rated and even some similarly rated countries," cautioned Cooper.
Moody's score for the UAE's government financial strength is ‘very high’ primarily driven by the low fiscal breakeven oil price and strong balance sheet of the Abu Dhabi government.
Finally, the UAE's susceptibility to event risk is assessed as ‘moderate’.
While Moody's considers the risk of domestic political upheaval to be low given the country's long history of internal stability, the volatile regional political environment is of some concern.