Fitch Ratings has affirmed Ras al-Khaimah’s long-term foreign and local currency issuer default ratings (IDRs) at A. The outlooks are stable. The issue ratings on RAK Capital’s senior unsecured foreign currency bonds have also been affirmed at A. The short-term foreign currency IDR has been affirmed at F1. The UAE country ceiling has been affirmed at AA. This ceiling applies to Ras al-Khaimah and Abu Dhabi.
Fitch said the ratings balance the benefits of RAK’s membership of the UAE, its low debt and solid fiscal performance against weaknesses in data quality and the macro policy framework.
The emirate derives substantial support from its membership of the UAE federation. RAK shares the UAE monetary and exchange-rate system with a credible dollar peg and an absence of exchange controls. The UAE country ceiling of AA+ benefits from Abu Dhabi’s external finances. RAK has no need for foreign exchange reserves and its rating is not constrained by external factors, compensating for the lack of external sector data.
RAK’s public finances also benefit substantially from federal government support. Most basic public services and infrastructure are provided directly by the federal government, relieving RAK’s budget of many of the spending obligations of a typical sovereign and allowing it to pursue an economic development programme while keeping debt low. We do not factor potential exceptional support from the FG into the ratings.
As a net oil importer but a major exporter of construction materials, RAK is indirectly affected by lower oil prices through a reduction of capital spending in the region.
“We expect that this will dent growth towards the end of our forecast period, as GCC countries (accounting for around 54 per cent of RAKs exports) choose to run down their fiscal reserves and take a gradual approach to reining in government spending,” Fitch said. “Nevertheless, we still expect real GDP to expand by 4.5-5 per cent per year in 2015-2017, driven by construction, rising tourist inflows and manufacturing growth. Infrastructure spending, residential projects and an ambitious tourism development plan support construction. Manufacturing growth is set to be concentrated in free trade zones, which will benefit from improved rail and road links.”