S&P Global: UAE possesses a solid financial shield against shocks

S&P Global Ratings has affirmed its 'AA/A-1+' long- and short-term foreign and local currency sovereign credit ratings on the United Arab Emirates, maintaining a "Stable" outlook. The agency also held its Transfer and Convertibility (T&C) assessment at 'AA+'. It emphasised that the country possesses a solid financial shield protecting it against shocks, alongside a massive net asset position that serves as a robust buffer against global economic volatility.

In its latest rating report released on Saturday, the agency noted that the UAE benefits from strong fiscal buffers — comprising sovereign wealth fund (SWF) assets and foreign exchange reserves — which continue to provide a substantial external and fiscal cushion to safeguard the economy from external shocks.

Under the Central Bank of the UAE’s (CBUAE) policy of pegging the UAE dirham to the US dollar, the economy benefits from a stable monetary environment. The banking sector demonstrates stable credit quality and remarkable resilience, supported by robust deposit growth and healthy capital buffers.

The UAE Banking System: The Strongest in the Region

The banking system maintains the strongest net foreign asset position in the GCC, standing at approximately $247 billion (~42 per cent of total domestic loans) as of June 30, 2026, providing substantial capacity to absorb potential capital flow fluctuations.

Asset quality metrics have improved structurally due to prudent provisioning policies. Non-performing loans (NPLs / Stage 3) at the 10 largest UAE banks fell to just 2.3 per cent of total loans, down from 6.1 per cent in 2021, while Stage 2 loans improved to 3.1 per cent from 6.8 per cent. Concurrently, banks reduced their exposure to high-risk sectors: hospitality exposure fell below 1 per cent, and combined real estate and construction exposure declined to 13 per cent.

Regulatory and liquidity support measures from the CBUAE continue to reinforce institutional strength, ensuring financial sector stability independent of external commercial factors.

Economic Stability

S&P highlighted that opening additional hydrocarbon export routes, combined with potential oil production increases starting in 2027, will support macroeconomic stability.

The stable outlook reflects the rating agency's view that the UAE’s large fiscal and external buffers provide sufficient policy headroom during adverse geopolitical developments or unfavorable hydrocarbon sector dynamics, including potential disruptions to oil production or exports.

S&P indicated it could raise its ratings over the medium term if measures to enhance monetary policy effectiveness — such as developing deep domestic capital markets — are successfully implemented.

The ratings are anchored by the government’s exceptionally strong consolidated net asset position, estimated at ~147 per cent of GDP for 2026, serving as a primary line of defense against shocks.

Meanwhile, UAE general government debt (combining federal debt with that of Abu Dhabi, Dubai, Sharjah, and Ras Al Khaimah) remains very low. Consequently, S&P estimates the consolidated general government balance will record an average surplus of 2.3% over 2026–2029.

OPEC Exit and Hydrocarbon Trajectory

S&P expects UAE oil production to rise gradually over 2026–2029, supporting macroeconomic recovery. Following its formal exit from OPEC and OPEC+ on May 1, 2026, the UAE is no longer bound by alliance production quotas. Prior to the exit, the UAE’s quota stood at 3.41 million barrels per day (bpd), including voluntary cuts—below its estimated capacity of 4.85 million bpd.

With ADNOC aiming to expand production capacity to 5 million bpd by 2027, S&P’s baseline scenario assumes a gradual increase in actual output from 3.4 million bpd (pre-war levels in February 2026) to 4 million bpd by 2027, reaching 5 million bpd by 2029.

This trajectory is expected to boost real GDP growth to an average of 6.2 per cent over 2027–2029, compared to an estimated 2.4 per cent in 2026. It will also support fiscal and current account surpluses, projected to average 3.5 per cent and 13 per cent of GDP, respectively, during the same period.

Resilient Banking Sector

While regional tensions pose capital outflow risks in general, S&P reassured that UAE banks maintain strong net foreign asset positions, leaving them well-positioned to manage potential volatility.

S&P projects real GDP growth at 2.4 per cent in 2026, before accelerating to an average of 6.2 per cent during 2027–2029. The economy continues to benefit from multiple Comprehensive Economic Partnership Agreements (CEPAs) supporting trade, alongside alternative hydrocarbon export routes that enhance overall economic resilience.

Expanding export capacity

The UAE is expanding export capacity via the new West-East Pipeline project, scheduled for operational launch by 2027, which will double ADNOC’s export capacity via Fujairah.

Currently, the Habshan–Fujairah pipeline gives UAE crude direct access to the Indian Ocean, operating above its design capacity of 1.5 million bpd at throughput levels near 1.8 million bpd. This is complemented by plans to expand eastern ports in Dibba, Fujairah, and Khorfakkan, along with integrated rail, road, and pipeline networks connecting oil fields to major ports.

These infrastructure upgrades, alongside secured storage capacity in strategic overseas markets like India, South Korea, and Japan, will drive long-term hydrocarbon growth.

Non-hydrocarbon sector growth is projected at 3 per cent to 4 per cent annually over 2027–2029, supported by economic stimulus packages across various emirates and the CBUAE, continued investments in trade corridors, and a strong recovery in aviation activity. The trade and logistics sectors have demonstrated exceptional operational agility through inventory optimization and seamless rerouting.

High Per Capita Income & Strong Fiscal Metrics

UAE GDP per capita remains among the highest globally, estimated at ~$58,400 for 2026. Economic momentum in 2027, alongside upward GDP revisions and moderate population growth, will further support per capita income trajectories.

The CBUAE is pursuing strategic initiatives to improve the timeliness and quality of economic data disclosures, focusing on balance of payments and international investment position metrics.

Strong foreign exchange reserves and sustainable debt levels support full confidence in the dirham’s peg to the US dollar. Abu Dhabi, Ras Al Khaimah, and the Federal Government maintain balanced fiscal stances. The federal budget is legally required to be balanced annually, backed by strong spending flexibility.

Federal cash balances have expanded significantly, providing comfortable buffers. General government debt remains low at an estimated 26% of GDP by end-2026, with federal debt accounting for less than 3% of GDP.

To promote financial inclusion and deepen local capital markets, the Federal Government launched a retail Sukuk initiative, recently listing its Retail Treasury Sukuk program on Nasdaq Dubai. Earlier this year, the government successfully extended its yield curve, enhancing local market depth.

Pillars of Financial Strength

The UAE affirmed its market standing with the successful issuance of its inaugural 7-year AED-denominated Treasury Sukuk, which was 5x oversubscribed.

The Federal Government efficiently manages issuance proceeds, allocating at least 50 per cent to US Treasuries and the remainder to spread-enhancing products, while foreign currency debt proceeds support the Emirates Investment Authority (EIA).

Liquid government assets stand at ~170% of GDP, including funds managed by major SWFs such as ADIA and EIA, alongside government deposits. Major state-owned holdings (ADQ, Mubadala, ICD) efficiently manage internal liquidity, keeping government contingent liabilities contained.

The UAE’s overall external position remains a key credit strength. Current account surpluses are projected to average 13 per cent of GDP over 2027–2029, driven by hydrocarbon and non-hydrocarbon export expansion. Liquid external assets exceed total external debt by over 156 per cent of current account payments on average over the same period, primarily held within sovereign wealth funds.