Abu Dhabi assigned 'AA/A-1+' foreign and local currency sovereign ratings, outlook stable

The outlook is stable. Abu Dhabi, the largest of the seven emirates making up the United Arab Emirates (UAE), is the 115th sovereign to be rated by Standard & Poor's.

"The ratings on Abu Dhabi are supported by the government's very strong asset position, providing significant financial flexibility, and by the country's high level of stability and wealth underpinned by its rich resource endowment,"

said Standard & poor's credit analyst Luc Marchand. "That said, the ratings are constrained by the geopolitical risks facing all sovereigns in the region."

The government of Abu Dhabi has accumulated substantial foreign and domestic assets over past decades. With no direct debt, the government net asset position is estimated by Standard & Poor's to be more than 200% of GDP in 2007, which is one of the highest among rated sovereigns. On the back of rising oil and investment income, which dominate government revenues, the Emirate's budget has shown substantial surpluses over the past few years and is expected to continue doing so in the medium term. We expect the consolidated government budget surplus to remain at about 50% of GDP over the next few years.

Abu Dhabi's economic structure and growth are sound. Estimated at about $67,600 in 2007, per capita income is higher than those of 'AA' rated peers. Growth is underpinned by a track record of prudent macroeconomic policies, careful management of oil and gas resources, and proactive diversification policies.

Structural weaknesses and challenges remain: "Like other sovereigns in the region, Abu Dhabi is potentially exposed to event risk such as a sharp escalation in hostilities between Iran and the West, or terrorist attacks," said Mr. Marchand. "These risks, if they were to come to the fore, would disrupt the brisk development in the region. Moreover, they would raise the specter of potential contingent liabilities in the UAE's banking and property sectors and put pressure on Abu Dhabi to provide wider-ranging support across the UAE."

Event risk is not expected to threaten political or social stability in the Emirate, however.