Fundamentally strong: S&P affirms Sharjah's ratings
The affirmation primarily reflects the solid growth in Sharjah’s GDP per capita. “We also factor in the advantages of membership in the UAE, which include low external risks for Sharjah. We believe that, under certain circumstances, Sharjah would receive extraordinary financial support from the UAE if needed. We do not currently anticipate that such a need will arise, however,” S&P said in a statement.
Sharjah is the third-largest member of the UAEin terms of population, GDP, and geographic area. It has approximately 10 per cent of the UAE’s total population and accounted for about five per cent of the UAE’s GDP for 2013, according to S&P.
“The fundamentals of the real economy are strong... supported by a relatively diverse production base. The four largest sectors are real estate and business services [about 20 per cent]; manufacturing [16 per cent]; mining, quarrying, and energy [13 per cent]; and wholesale and retail trade [12 per cent]. We estimate GDP per capita at $25,000 in 2013. We estimate real economic growth at about five per cent this year, in line with trends in neighbouring emirates. Our estimate for real per capita GDP growth, which is a weighted average for the period 2008-17, stands at four per cent. This is relatively high compared with peers with similar wealth.”
“The Sharjah government’s budget is small, largely because the federal budget covers a large share of public services. We estimate that Sharjah government expenditures will equate to eight per cent of GDP in 2014. The government’s revenue base is similarly small — at about six per cent of GDP — but relatively diverse, in our view.”
“In our opinion, Sharjah’s general government deficit will likely widen to more than two per cent of GDP in 2014, from 1.3 per cent in 2013, as capital expenditures expand. We think the government will post modest deficits of less than two per cent of GDP during 2014-17. In our baseline scenario, we expect that government borrowing will be limited to that required for capital spending, and that net government debt will average seven per cent of GDP over 2014-17. Nevertheless, due to the small size of the overall budget, government interest expenditures are high relative to government revenues. We think this ratio will average about 12 per cent in 2014-2017, absent revenue growth better than we currently expect.”
“The stable outlook balances our view that Sharjah’s relatively high GDP per capita will benefit from the UAE’s robust growth against the Sharjah government’s rising interest burden. We expect the UAE’s system of fiscal federalism to continue supporting Sharjah and covering its basic services.”