Fitch holds Ras al-Khaimah’s rating at A/AA

Fitch Ratings this morning affirmed Ras al-Khaimah’s long-term foreign and local currency Issuer Default Rating (IDR) at A with stable outlooks.

The short-term foreign currency IDR has also been affirmed at F1. The country ceiling has been affirmed at AA+, the same level as that of the UAE as a whole.

Fitch said the ratings reflect the benefits of Ras al-Khaimah’s membership of the UAE, its low debt and strong fiscal current surplus. These are offset by weaknesses in data quality and the macro policy environment.

Fitch said that the emirate benefits from the UAE’s strong fiscal and external sector positions, supported by Abu Dhabi’s oil income and wealth. External finances do not currently constrain its ratings, Fitch said.

Ras al-Khaimah’s public finances also benefit substantially from federal government support. Most basic public services and infrastructure are provided directly by the the UAE government.

Fitch said that Ras al-Khaimah has broadly achieved a budget surplus since 2009, and public debt stands at around half the peer median.

“Fiscal outturns in 2013 outperformed Fitch’s forecasts, with a budget surplus of 2.8 per cent of GDP achieved mainly through a drop in capital and investment spending, whereas current spending rose by 26 per cent,” Fitch said. “Revenues increased across the board in line with a robust economic performance. Debt-to-GDP is projected by Fitch to decline to around 20 per cent in the medium term from 26.2 per cent as of end-2013.”

Fitch said that the Ras al-Khaimah government had upgraded its growth forecast for 2014.

“The main drivers of growth are expected to stem from government-led construction activity and an expansion of the tourism sector,” Fitch said. “Free zones such as the industrial production zone will continue to support growth in Ras al-Khaimah’s manufacturing sector. Dubai’s successful bid at hosting the Expo 2020 event is also likely to provide an added boost to the emirate’s GDP in the run up to the event.”

Fitch said that institutional weaknesses continue to constrain the rating.

“The availability of data in the UAE is weaker than most Fitch-rated sovereigns,” Fitch said. “Ras al-Khaimah’s data quality is partly constrained by inadequacies at the federal government level. National accounts are particularly weak, with no real GDP data. Balance of payments and monetary data are only compiled for the UAE in aggregate. Fiscal data provision in Ras al-Khaimah is adequate and public-sector wide, with strong central control.”

Standard & Poor’s (S&P) said on 8 May that it might downgrade the credit rating for Ras al-Khaimah as a result of doubts about the accuracy of population data published by the emirate, one of seven that make up the UAE.

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