This report does not constitute a rating action.
Abu Dhabi is readying to issue local currency debt as part of an ongoing effort to develop the United Arab Emirates' (UAE) domestic debt capital markets. S&P Global Ratings expects that Abu Dhabi and the UAE federal government will issue more than $8 billion of local currency debt this year to support the building of a domestic yield curve. Overall, we expect individual emirates and the UAE federal government to issue about $18 billion of total debt in 2025, slightly down from $19 billion in 2024 (see chart). About 55% of that will be used for refinancing or to roll over of maturing debt. Of the three emirates we rate--Abu Dhabi, Ras Al Khaimah, and Sharjah--we expect that only Sharjah will issue debt to meet a fiscal shortfall (we estimate its deficit will be 6.3% of GDP in 2025), while the others will maintain their surplus position.
| Gross borrowing needs vary across individual Emirates | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Rating | Gross borrowing requirement* | |||||||||||
| Bil. $ | Percentage of respective GDP | |||||||||||
| 2024 | 2025e | 2024 | 2025e | |||||||||
| Sharjah | BBB-/Negative/A-3 | 5.7 | 6.0 | 13.7 | 13.9 | |||||||
| Ras Al Khaimah | A/Stable/A-1 | 0.0 | 1.0 | 0.0 | 7.5 | |||||||
| Abu Dhabi | AA/Stable/A-1+ | 12.4 | 8.2 | 4.1 | 2.7 | |||||||
| Dubai§ | Not rated | 0.2 | 0.0 | 0.2 | 0.0 | |||||||
| UAE Federal Government† | Not Rated | 1.0 | 2.7 | 0.2 | 0.5 | |||||||
| *Reflects fiscal deficits (where applicable), roll over of maturing debt, and other borrowing plans. § Based on publicly available data.† Based on unconsolidated and publicly available data for the UAE federal government. e--Estimate. Sources: National sources, S&P Global Ratings. | ||||||||||||
What's Happening
The UAE's domestic debt capital market remains relatively nascent, particularly with regards to local currency issuance, but it is growing. Since the UAE federal government began raising debt in 2021, it has issued about AED27 billion ($7.3 billion) of treasury bonds and sukuk in local currency, equating to about 42% of total issuances. Sharjah also issued AED1 billion of long-term local currency sukuk in July 2024 and reissued its AED7 billion short-term sukuk certificate in May 2024. However, most of the emirates and federal government debt remains denominated in U.S. dollars and is held externally.
Why It Matters
Capital markets are volatile in an uncertain global environment , and reliance on international capital markets could expose some issuers to higher borrowing costs. Sharjah is particularly exposed in this regard. Its fiscal deficits will likely remain large, net government debt is about 50% of GDP, and its interest burden is around 30% of government revenues, one of the highest among our rated sovereigns. We note, however, that Sharjah's recent sukuk issuances were well received by the market.
The UAE's well-capitalized and liquid banks could provide funding should capital markets prove unsupportive. Banks have notably increased deposits over the past three years and continue to display comfortable loan-to-deposit ratios that should support strong lending growth in 2025. In a worst-case scenario of impaired access to capital markets and bank stress, we expect the UAE federal government, backed by Abu Dhabi, would provide extraordinary support to the emirates.
Despite lower oil prices, most of the emirates will maintain prudent fiscal policies and strong balance sheets. Much of the debt issuance is therefore likely to be opportunistic and market dependent. For example, we expect that Abu Dhabi could choose to repay some of its about $6 billion of debt maturing this year. Dubai also continues to deleverage--the government repaid $1.2 billion during the first three months of the year. Dubai could however issue more debt from 2026 to fund the expansion of the Al Maktoum International Airport and the renovation of the rainwater drainage network. Ras Al Khaimah issued a $1 billion 10-year sukuk in March to refinance the same amount maturing that month. There are large upcoming tourism-related projects in the emirate, but we anticipate that these will be mostly funded by government-related entities (GREs), with contingent liabilities of the government remaining manageable.
What Comes Next
More regular domestic currency issuances by Abu Dhabi and the UAE federal government will help to build a domestic yield curve. This could be used in the pricing of issuance by banks and corporates and help smaller issuers access the capital markets, while diversifying the funding base. That said, we expect bank funding along with the access to international capital markets to remain the core funding sources for corporates in the near term.
Related Research
- Emirate of Sharjah Outlook Revised To Negative On Rising Fiscal Risks; Ratings Affirmed At 'BBB-/A-3', March 21, 2025
- United Arab Emirates Banking Sector 2025 Outlook: Balancing Growth And Risks Amid Economic Expansion, Jan. 8, 2025
- Emirate of Abu Dhabi, Nov. 25, 2024
- Ras Al Khaimah Upgraded To 'A/A-1' On Stronger Growth Prospects And Resilient Fiscal Performance; Outlook Stable, Nov. 22, 2024
| Primary Contact: | Zahabia S Gupta, Dubai 971-4-372-7154; zahabia.gupta@spglobal.com |
| Secondary Contact: | Juili Pargaonkar, Dubai 971-4-372-7167; juili.pargaonkar@spglobal.com |
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