Moody’s Ratings has affirmed the United Arab Emirates’ Aa2 long-term local and foreign currency issuer ratings, indicating that the country’s economic outlook remains stable. The agency also confirmed the foreign currency senior unsecured debt and medium-term note program ratings at Aa2 and (P)Aa2, respectively.

According to Moody’s, this affirmation reflects the expectation that the debt burden of the federal government will continue to be very low. This stability is supported by the government’s long-standing commitment to a balanced budget policy and limited spending needs due to fiscal decentralization.

The agency pointed out that the UAE’s rating benefits significantly from the strong support of the government of Abu Dhabi, which is crucial in the UAE federation. Moody’s expressed confidence that the UAE’s credit profile will continue to improve as a result of Abu Dhabi’s robust balance sheet, which enhances the sovereign’s capacity to withstand economic shocks.

Moody’s also noted that the UAE has concentrated on expanding non-oil revenue streams, enhancing the development of non-oil sectors, and making the country more attractive to foreign investment and talent. This strategy is expected to reduce the government’s indirect exposure to oil price fluctuations and long-term carbon transition risks more quickly than previously anticipated, thereby strengthening the UAE’s overall credit profile.

In terms of economic contributions, hydrocarbons accounted for approximately 22 percent of the UAE’s total GDP and around 25 percent of total domestic exports of goods and services in 2024. Although the federal government does not directly collect hydrocarbon revenues, it is dependent on revenue contributions and other off-budget spending from the government of Abu Dhabi, which derives about 80 percent of its overall fiscal revenue from oil and gas.

The UAE’s real GDP grew by 3.8 percent during the first nine months of 2024, reaching AED1.322 trillion. This growth was driven primarily by a robust expansion in non-oil sectors, which increased by 4.5 percent to AED987 billion, showcasing the success of the country’s economic diversification strategy.

Non-oil activities now contribute 74.6 percent to the UAE’s real GDP, underscoring their increasing significance in driving economic growth, while oil-related activities account for 25.4 percent. The trade sector is the largest contributor to the non-oil GDP at 16.5 percent. Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, stated that the UAE’s comprehensive economic partnership agreements with various nations have added AED135 billion to the country’s non-oil trade, reflecting a 42 percent annual increase.

However, Moody’s identified some downside credit risks for the UAE, particularly its exposure to regional geopolitical tensions that could undermine the economy’s strong diversification momentum and affect long-term growth prospects. The agency warned that escalations in regional tensions could disrupt the UAE’s oil production and exports, especially through the crucial Strait of Hormuz.

Despite these risks, Moody’s acknowledged that Abu Dhabi’s considerable government financial assets provide a buffer against such shocks. The UAE can also transport a significant portion of its oil exports via the Habshan-Fujairah pipeline, which bypasses the Strait of Hormuz, and utilize its new freight rail network linking Abu Dhabi to Fujairah for other goods.