Sharjah’s debt burden to exceed 15% of GDP in 2017 – Moody’s

The UAE emirate of Sharjah could face a debt burden exceeding 15 per cent of GDP next year as slowing non-oil activity continues to hit government revenues, according to ratings agency Moody’s.

Sharjah posted a fiscal deficit of Dhs 3.58bn last year ($975m), or 4.3 per cent of GDP, its highest since 2008 and more than double the 2.1 per cent forecast in the budget.

Though government finances have not deteriorated as much as other emirates, the firm said a prolonged period of slower economic growth could result in a faster build-up of government debt and exert downward pressure on Sharjah’s creditworthiness.

“Persistent deficits have caused Sharjah’s government debt burden to rise, albeit from a very low base, and we expect it to exceed 15 per cent of GDP by 2017,” Moody’s said.

Sharjah is currently ranked by the agency as A3 stable, at the bottom of the third highest investment grade, compared to Abu Dhabi’s ranking of Aa2, in the second highest investment grade.

The emirate forecasts a fiscal deficit of Dhs 2.5bn ($558m) this year, or 2.3 per cent of GDP. It anticipates a 39 per cent increase in revenues and stable expenditure to make this a reality.

Moody’s said there were downside risks to the target and economic activity would likely remain restrained by weak regional demand.

“Going forward, we expect Sharjah’s real GDP growth to remain between 1 per cent and 2 per cent in 2016-17, compared to an average 4.5 per cent in 2011-14,” it said.