Iran-Israel ceasefire reduces risks, boosts credit outlook

Global credit rating agencies Moody’s Investors Service, Standard and Poor’s and Fitch Ratings have assigned ‘AA’ rating with stable outlook for the UAE economy, despite the regional tension. This comes right after the cessation of the military conflict in the region that significantly reduces security, political and economic risks.

Standard and Poor’s (S&P Global) on June 17 has assigned ‘AA/A-1+’ long- and short-term foreign and local currency sovereign credit ratings to the UAE, while Moody’s affirmed the UAE’s Aa2 long-term local and foreign currency issuer ratings, noting that the country’s outlook remains stable. On June 24, the day of the ceasefire between Iran and Israel, Fitch Ratings affirmed the UAE’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘AA-‘ with a stable outlook.

“This reflects the continued international confidence in the strength of the UAE economy and the sustainability of its fiscal policies,” the UAE Ministry of Finance said in a statement, a day after Iran and Israel agreed to a ceasefire to end a possible war, that has reduced the risks to a great extent, after Iran warned of blocking the Strait of Hormuz through which the majority of the Gulf’s energy moves.

“This consensus by all three major global credit rating agencies highlights the UAE’s advanced fiscal standing and strengthens its position among the few countries globally with strong sovereign credit ratings from all three top agencies.

“The ratings confirm the UAE’s ability to diversify and boost non-oil revenues, maintain sound fiscal discipline, manage risks effectively, and uphold prudent fiscal policies. All of these factors have contributed positively to economic stability and sustained growth across various sectors.”

Fitch’s report noted the elevated geopolitical risks in the region, while affirming the UAE’s strong ability to withstand short-term disruptions, supported by its substantial fiscal and external buffers.

“This achievement is yet another testament to the UAE’s continued success in striking a balance between fiscal stability and economic growth. It further reinforces international investor confidence and affirms the UAE’s status as a secure and stable destination for business and investment,” Fitch Ratings said.

Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, First Deputy Ruler of Dubai, Deputy Prime Minister, and Minister of Finance, said: “The affirmation of the UAE’s strong sovereign rating by the world’s top three international credit rating agencies, and their consensus on a stable outlook, reflects the deep-rooted international confidence in the resilience of our national economy and the efficiency of our fiscal policies.

“The UAE continues to implement economic policies grounded in diversification, transparency, and fiscal discipline, with a strong focus on increasing non-oil revenues and achieving financial sustainability. This reflects the integrated performance of government entities and long-term strategic planning, which continue to reinforce the UAE’s position as a flexible and credible global economic hub.”

The UAE is the sixth-largest crude petroleum exporter in the world, with reserves largely concentrated in Abu Dhabi. Its proven crude reserves are the fifth-largest within OPEC, and the highest of all OPEC members per capita.

“The UAE has also made significant strides toward diversifying its economy, so that non-oil sectors now comprise about 75 percent of GDP. Over the past four years, real non-oil growth has averaged around 6 percent, bolstered by strong activity in the services sectors, including construction, financial services, transport and storage, hospitality, and manufacturing, which together account for about 35 percent of UAE’s real GDP,” S&P Global says.

“The stable outlook reflects our expectation that the UAE’s consolidated fiscal and external positions will remain strong over the next two years, amid continued prudent policymaking and resilient economic growth.

“The ‘AA’ rating and stable outlook reflects our view of the UAE’s strong fiscal and external positions. The exceptional strength of the government’s consolidated net asset position provides a buffer to counteract the effects of oil price swings and geopolitical tensions in the Gulf region on economic growth, government revenue, and the external account.”

Fitch Ratings project a UAE fiscal breakeven oil price of US$45-50 per barrel in 2025 and 2026 excluding investment income, partly reflecting rising oil production volumes and the significant share of spending by Government-Related Entities (GREs).

“We forecast the consolidated surplus at 5.3 percent of GDP in 2025 and 5.9 percent in 2026. Narrower deficits in Sharjah and higher oil production levels in Abu Dhabi will mitigate the forecast drop in oil prices from US$79.5 per barrel in 2024 to US$65 per barrel in 2025 and 2026. Dubai will retain a budget surplus,” Fitch says.

It estimates consolidated UAE government debt at 24.9 percent of GDP at end-2024, well below the ‘AA’ category median of 48 percent. It will rise slightly to 25.4 percent in 2025 and 2026.

“Individual emirates have varied debt profiles, with Sharjah standing out with a higher debt burden. We project Abu Dhabi’s debt to increase as it starts issuing in local currency, Sharjah to borrow to fund deficits, the FG to build the yield curve while Dubai debt will continue to edge down,” Fitch Ratings say.