Moody's affirms UAE at Aa2 despite forecast 7% economic contraction in 2026

15/06/2026 03:17 AST

Moody's Ratings affirmed the UAE's Aa2 long-term sovereign ratings with a stable outlook, citing the country's financial buffers, low federal debt and diversified economy despite disruption to trade through the Strait of Hormuz.

The agency also maintained the UAE's foreign-currency senior unsecured debt rating at Aa2 and its medium-term note program rating at Aa2. Its local- and foreign-currency country ceilings remain at Aaa.

The latest assessment comes as Gulf economies navigate heightened geopolitical uncertainty stemming from disruptions to shipping routes and energy markets. Credit rating agencies have increasingly focused on the region's fiscal strength, sovereign wealth buffers and progress in economic diversification when evaluating countries' ability to withstand external shocks.

Moody's said the UAE's high per-capita income, effective policymaking and progress in developing non-hydrocarbon industries strengthen its capacity to absorb economic shocks.

However, Moody's expects hydrocarbon production to decline as a result of the disruption.

"We expect real GDP (gross domestic product) to contract by around 7 percent in 2026, driven by a decline in hydrocarbon production by 23 percent and a contraction in the non-hydrocarbon sector by 4 percent, driven by disruption to trade and confidence-sensitive sectors," Moody's report stated.

Across the Gulf, Moody's latest sovereign actions point to sharply different levels of resilience.

Qatar retained an Aa2 rating with a stable outlook, matching the UAE, while Saudi Arabia was affirmed at Aa3 with a stable outlook, supported partly by its ability to route oil through the East-West pipeline and Red Sea terminals.

Kuwait kept its A1 stable rating while Bahrain's weaker B2 rating carries a negative outlook as the regional conflict compounds its fiscal pressures.

The assessment also assumes that Abu Dhabi would provide full financial support to the federal government if required.

Abu Dhabi's government financial assets exceeded 300 percent of the emirate's GDP at the end of 2025, according to the agency. The UAE can also bypass the Strait of Hormuz for some oil exports through the Habshan-Fujairah pipeline.

Tourism, real estate, logistics, transport and foreign investment are expected to face pressure from weaker confidence and interrupted connectivity.

Higher oil prices, forecast to average between $90 and $110 a barrel in 2026, are expected to partly offset lower export volumes. Moody's projects economic growth will rebound to 13 percent in 2027 as trade flows resume and non-hydrocarbon activity recovers.

The federal government recorded an estimated budget surplus equivalent to 0.8 percent of GDP in 2025, while federal debt is expected to remain at about 3 percent to 4 percent of GDP.

Moody's said an escalation damaging strategic infrastructure could place downward pressure on the rating. Improved transparency, reduced geopolitical risks and greater resilience to the global energy transition could support an upgrade.

Arab News