S&P downgrades Sharjah’s credit rating

The ratings agency Standard & Poor’s (S&P) has downgraded the credit rating assigned to the emirate of Sharjah due to concerns about rising debt.

The agency lowered its rating on Sharjah to BBB+/A-2 from its previous level of A/A-1, stating that Sharjah’s debt as a percentage of GDP has rapidly increased since 2014.

“Sharjah’s fiscal underperformance below our expectations has resulted in a rapid increase in the emirate’s debt burden,” S&P said in its note.

“The combination of increased fiscal and capital spending over the past three years and the delay in implementing revenue-raising measures has weakened the emirate’s fiscal stance and raised its debt burden more than we initially anticipated.” The agency expects Sharjah’s government deficit to average 3 per cent between 2014 and 17, compared to just 1 per cent in 2010-13.

It also said that the government had postponed various revenue-raising measures, including the sale of land, despite higher spending levels.

As a result, gross debt has increased to about 13.6 per cent of Sharjah’s GDP.

“Under our base case scenario for 2017, Sharjah’s fiscal deficit will remain at about 2.2 per cent of GDP. But we anticipate its debt-to-GDP ratio will further increase to 18.3 per cent and its interest payments will represent 5.7 per cent of government revenues.”

Meanwhile, the agency affirmed its A/A-1 rating on Ras Al Khaimah, which it said benefits from a fairly diverse economy.

It expects Ras Al Khaimah’s GDP to increase from an average of 1.4 per cent over the past two years to nearly 3 per cent “thanks to the increase in business activity ahead of Expo 2020 in Dubai and capital spending in the GCC region”.

It said growth is likely to continue in the emirate’s main areas of economic activity, including manufacturing (which generates 25 per cent of its GDP), construction, business services and tourism.

mfahy@thenational.ae

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