Moody's Upholds UAE's Aa2 Rating Amid Robust Economic Diversification

Moody's Investors Service has reaffirmed the United Arab Emirates' Aa2 long-term local and foreign currency issuer ratings, maintaining a stable outlook. This decision underscores the nation's successful economic diversification and prudent fiscal management.

The rating agency highlighted the UAE's minimal federal debt, a result of its consistent adherence to balanced budget policies and the decentralized fiscal structure that limits central spending requirements. Moody's emphasized that Abu Dhabi's substantial financial reserves bolster the federation's overall credit profile, enhancing its capacity to absorb economic shocks.

A key factor in this affirmation is the UAE's accelerated shift towards non-oil sectors. Hydrocarbons currently represent approximately 22% of the nation's total GDP and about 25% of its domestic exports of goods and services. However, the federal government's direct revenue from oil and gas remains limited, relying instead on contributions from the Emirate of Abu Dhabi, which derives around 80% of its fiscal revenue from these resources.

The UAE's real GDP experienced a growth of 3.8% during the first nine months of 2024, reaching AED 1.322 trillion. This upturn was predominantly driven by a 4.5% expansion in non-oil sectors, amounting to AED 987 billion, reflecting the efficacy of the nation's diversification strategy. Notably, non-oil activities now contribute 74.6% to the UAE's real GDP, while oil-related activities account for 25.4%.

The trade sector emerged as the largest contributor to the non-oil GDP, accounting for 16.5%. The UAE's comprehensive economic partnership agreements with various nations have significantly boosted non-oil trade, adding AED 135 billion—a 42% annual increase, as noted by Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai.