On Thursday, Moody's Investors Service changed the outlook on the government of Sharjah's long-term issuer ratings from “stable” to “negative” and affirmed the long-term issuer ratings at A3.
The agency stated that the negative outlook reflects the government’s deteriorating fiscal position. In the absence of significant fiscal consolidation measures, the government of Sharjah could face further rating downgrades. Moody’s expects the government’s fiscal position to continue to deteriorate unless significant consolidation measures are taken.
The A3 rating is supported by a reasonably well-diversified economy, relatively high income levels, and low non-financial public sector debt. Moody’s also points to Sharjah’s membership within the federal structure of the UAE (rated Aa2 stable by the ratings agency) as supporting the government’s rating.
Increases in spending have outweighed revenues, resulting in the government accumulating further debt. New measures taken in 2018 to raise revenue have had mixed outcomes, said Moody’s. This renewed widening in Sharjah’s budget deficit, increasing to four percent of GDP in 2018 from 2.8 percent in 2017, and in the absence of new fiscal consolidation measures, the agency expects the debt burden to continue to rise in the next few years.