• Standard & Poor’s maintains A/A-1 rating and stable outlook for Sharjah
  • Diversified economy and UAE support means effect of lower oil prices is mitigated
  • Growing government debt and small revenue base are negative factors

US ratings agency Standard & Poor’s (S&P) has affirmed Sharjah’s A/A-1 rating with a stable outlook.

The decision is based on the emirate’s diversified economy and support from the UAE government.

It comes despite the dampening effect of lower oil prices on economic growth and a widening fiscal deficit.

S&P estimates Sharjah’s GDP growth will be 3.5 per cent in 2015, down from 5.5 per cent in 2014. This is based on inflation rates, in the absence of official data.

Lower oil prices will have an adverse effect on demand and liquidity. But infrastructure projects in Dubai and Abu Dhabi, such as the new creek crossing and the metro, will have a knock-on effect for Sharjah’s economy.

Sharjah’s economy is the most diversified in the Gulf, with 20 per cent based on real estate and business services, 16 per cent on manufacturing, 13 per cent on natural resource extraction and 12 per cent on trade.

S&P projects that government spending will only amount to 8 per cent of GDP in 2015, as most public spending is from the federal government. But a revenue base of only 6 per cent of GDP means the government is implementing cost-saving measures. These include raising revenues from state-owned enterprises by selling stakes.

Electricity and water subsidy costs should also fall in line with lower oil prices.

S&P predicts an increase in the fiscal deficit to 2 per cent, bringing overall government debt to an average of 8 per cent between 2015 and 2018. However, this will be a heavy burden due to Sharjah’s small revenue base.

S&P also criticised Sharjah’s highly centralised governmental decision-making process.

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