Monday 18, June 2018 by Kudakwashe

Abu Dhabi stimulus confirms fiscal adjustment is over says Fitch

 

Abu Dhabi's new economic stimulus programme will have limited sovereign credit impact 

  

Abu Dhabi's new economic stimulus programme highlights the winding down of fiscal adjustment and suggests that the fiscal policy-making framework has seen little improvement, despite sharp spending cuts and increases in non-oil revenue.

In statement, Fitch said the stimulus package confirmed its view when it affirmed the sovereign rating in December last year, that active fiscal adjustment to the 2014 oil price shock is over.

Moreover, the decision to adopt a stimulus package during a period of high oil prices suggests that fiscal policy is still not grounded in a medium-term framework, and annual budgets represent only a weak constraint to spending.

The reforms will support improvements in the business environment, giving some boost to non-oil growth and diversification over time, but Abu Dhabi's economy will remain highly reliant on hydrocarbon production and government spending for the foreseeable future.

Sheikh Mohammed bin Zayed, Abu Dhabi’s Crown Prince and Deputy Supreme Commander of the UAE's Armed Forces earlier this month approved a three-year stimulus package worth AED 50 billion ($ 13.6 billion) with the objective to create employment, increase tourism, and improve private sector development.

We expect non-oil growth of 3.5 per cent in 2018 and 4.0 per cent in 2019, from 1.8 per cent in 2017, said Fitch.

  

Features & Analyses

Wealth Management Why is there no inflation?

  Mark Burgess, Deputy Global CIO & CIO, EMEA, Columbia Threadneedle Investments, writes about one of the biggest questions… read more