Stable. Sovereign risk outlook has been revised down from positive to stable as the full impact of the Dubai World (DW) crisis will be felt in the second half of 2010, and there is a risk of more debt restructurings by quasi-state companies. However, we maintain that the UAE, as a whole, is comfortably able to meet its debt obligations owing to Abu Dhabi’s vast oil reserves and large holdings of foreign assets.
Stable. The authorities are committed to maintaining the currency peg, but US dollar volatility will weigh on the rating. The UAE’s withdrawal from the proposed Gulf Co-operation Council single currency does not affect the rating.
Banking sector risk
Stable. UAE banks have yet to book non-performing loans relating to DW. Uncertainty over the extent of the write-downs on the DW debt will mean banks will be hesitant to start lending again. Therefore, we expect lending by banks to remain subdued until they fully account for their exposure to DW.
The domestic political scene is stable, and the emirs’ continued dominance over policymaking is unlikely to face serious opposition.
Economic structure risk
The UAE’s foreign assets will continue to support the economy. However, banking, services and construction are suffering.
SOURCE: Country Risk Service