“Foreign assets of the emirate will protect it from the impact of lower oil revenues in the coming years”
The drop in oil prices is likely to cause Abu Dhabi’s economic growth to slow in 2015 and put an end to four consecutive years of double-digit fiscal surpluses, Moody’s Investors Service says in a recent report.
Abu Dhabi’s large stock of foreign assets, however, will protect the emirate from the impact of lower oil revenues in the coming years, the report says.
Steven Hess, a New York-based analyst at Moody’s says: “We expect that resources accumulated during years of high oil prices, and a prudent budgeting of oil proceeds, will mitigate the negative consequences of oil price volatility on Abu Dhabi’s fiscal and external accounts.”
According to Moody’s the emirate has a sizeable stock of offshore assets in its off-budget investment vehicles, such as the Abu Dhabi Investment Authority, Abu Dhabi Investment Council, International Petroleum Investment Company (IPIC) and Mubadala.
Abu Dhabi’s stock of offshore assets in its off-budget investment vehicles exceeds the total liabilities of Abu Dhabi government-related institutions and other emirate governments, according to Moody’s.
The sovereign wealth fund Abu Dhabi Investment Authority (ADIA) alone holds an estimated $498 billion in assets as of 2014.
“At the same time, growth in Abu Dhabi’s economy, which remains largely dominated by the hydrocarbon sector, will remain volatile,” said Hess.
If the period of low oil prices is prolonged, that could also lead to the crystallization of contingent liabilities on the Abu Dhabi government’s balance sheet and erode fiscal buffers, says Moody’s, although it expects that the government will be able to finance fiscal deficits for several years if it liquidates assets.
Despite Abu Dhabi’s efforts to develop non-oil sectors, which at present account for 10 per cent of government revenues, the government will continue to derive the majority of its revenues from the oil sector, Moody’s expects.
The emirate’s economic diversification has been slow: In 2014, non-oil sectors made up 49 per cent of GDP, compared with 45 per cent on average over the past decade, according to Moody’s.