The UAE's Fiscal Fitness
The United Arab Emirates has recently cemented its position as a global economic powerhouse, securing a robust "AA/A-1+" sovereign credit rating from S&P Global for both its foreign and local currency, complete with a stable outlook. This is a significant milestone, marking the first time S&P has issued a consolidated rating for the entire UAE, rather than assessing individual emirates. This places S&P's assessment comfortably in line with Moody’s Aa2 and even a notch above Fitch’s AA-, highlighting the nation's strong financial footing.
S&P Global expressed confidence in the UAE's capacity to maintain strong fiscal and external positions through to 2028. A key factor underpinning this optimistic outlook is the Emirates' substantial net asset position, which acts as a crucial buffer against potential fluctuations in oil prices and any geopolitical tensions. This rating underscores the UAE's impressive ability to meet its financial commitments, aligning with the broader trend of positive credit ratings seen across the Middle East.
The stable outlook is driven by prudent policymaking and resilient economic growth, with the non-oil sector expected to be the main engine. S&P Global forecasts the UAE's economy will maintain a solid annual growth rate of around 4% from 2025 to 2028, fuelled by strong non-oil sector performance and a rebound in oil production. Despite potential global economic challenges, consistent fiscal surpluses at both federal and emirate levels will underpin this growth, projected to average 3.2% of GDP. By 2028, the net public sector asset position is expected to reach an impressive 177% of GDP.
The UAE's dedication to economic diversification is clearly paying dividends, with non-oil sectors now making up approximately 75% of GDP. Key growth areas include tourism, manufacturing, and digital services. Major development initiatives, such as the Saadiyat Cultural District and the forthcoming Disney Park in Abu Dhabi, alongside 27 Comprehensive Economic Partnership Agreements (CEPAs), are set to boost economic momentum further.
Beyond economic expansion, the UAE has implemented significant structural reforms to enhance its business environment. Notably, a new foreign direct investment law now permits full foreign ownership across various sectors. Complementary legal reforms, including the liberalisation of personal and family laws, further strengthen the country’s appeal to international investors and professionals. The Golden Visa Program has also become a cornerstone policy for talent retention, offering long-term residency to investors, entrepreneurs, and highly skilled workers. These initiatives are expected to boost labour market flexibility, attract increased foreign investment, and support higher inflows of skilled expatriates, balanced by ongoing "Emiratisation" policies focused on workforce nationalisation. While an upgrade could come from a deeper domestic capital market, risks include rising interest burdens or potential declines in per capita wealth.
Fitch Ratings this morning affirmed the UAE's AA- rating with a stable outlook, also noting its robust financial buffers and massive net foreign assets (157% of GDP last year). This rating also reflects the UAE's moderate government debt and high GDP per capita. Despite regional political risks, Fitch expects conflicts to remain contained. The agency projects a healthy fiscal surplus for the UAE (5.3% of GDP in 2025, 5.9% in 2026), driven by an anticipated 5.2% GDP growth this year from increased oil output and strong non-oil expansion. Abu Dhabi is prepared to borrow if oil prices drop, with a low fiscal breakeven of $45-$50 per barrel.
Beyond the ratings and stable outlook, investing in the UAE's fixed income market is appealing. Aside strong backing from the government, this is a diversifying economy and a growing local bond market. Sitting on a huge pile of assets and consistently running budget surpluses, the UAE has a solid cushion against any global bumps in the road.
If you would like to receive The Daily Update to your inbox, please email markets@epicip.com or click the link below.