S&P Global Ratings has lowered its outlook to negative from stable for Sharjah and Ras Al Khaimah, two of the seven emirates that form the UAE, citing the financial risks of lower oil prices and the coronavirus.
The rating agency affirmed its BBB/A-2 long-term rating for Sharjah and its A/A-1 long-term rating for Ras Al Khaimah.
A negative outlook means an expectation that a credit issuer's finances may worsen and the agency may downgrade its rating as its next move.
S&P said it expects Sharjah's economy to contract by 3 percent this year due to lower oil prices and the coronavirus outbreak, while Ras Al Khaimah's economy would contract by 2 percent.
Both economies were expected to recover next year, it said.
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Talking about the revised outlook, RAK government said the emirate remained in a strong fiscal position to weather the current global economic conditions resulting from the COVID-19 pandemic and the corresponding drop in oil prices.
“RAK’s diversified economy and its established manufacturing base, providing 26 per cent of GDP, will allow for a relatively lighter economic slowdown, underpinned by the emirate’s ongoing fiscal prudence, which has consistently delivered budget surpluses in the face of previous crises,” a statement from RAK government said.
“Furthermore, RAK enjoys a low and declining government debt burden, with the government set to retire two bonds before their maturity date this year. Large liquid assets make the emirate a net creditor, adding to its stability,” the statement added.
Like other countries, the United Arab Emirates has taken drastic measures including curfews and shuttering businesses to curb the spread of virus. It has recorded nearly 10,000 infections and 71 deaths.
Restrictions were eased over the weekend and some businesses such as retail outlets and restaurants have reopened, though at limited capacity as mandated by the government.
In October, Sharjah raised $750 million in a 10-year Islamic bond.
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