Global credit rating agency Standard & Poor’s has lowered its long- and short-term foreign and local currency sovereign credit ratings on the Emirate of Sharjah from ‘A/A-1’ to ‘BBB+/A-2’ with a stable outlook. The agency attributed the change largely to an increase in government debt and slower than expected fiscal consolidation. S&P also forecasts faster economic growth in 2017, increasing towards 2020 with real GDP growth reaching 2.8 percent in 2020, compared to 1.1 percent in 2010 (all S&P statistics).
According to S&P, the lowering in credit rating reflects the combination of accumulated government debt above the agency’s expectations for 2016 and a revised assumption of elevated fiscal expenditure over 2017-2020, which it expects to stay at above 5 percent of revenues over the period. The agency expects the government deficit for 2014-2017 to average close to 3 percent of GDP, in comparison with 1 percent of GDP between 2010 and 2013.
The Government of Sharjah recently announced an AED 22 billion (US$ 5.9 billion) budget for the year 2017, increasing government spending by some 3 percent and expected government revenue by 7 percent compared with 2016. The lion’s share of the 2017 budget has been allocated to infrastructure development and economic development activities, which are expected to account for 30 percent and 41 percent of spending, respectively.
S&P projects that the Sharjah government’s consolidated fiscal revenue will increase to 8.9 percent of GDP in 2017, or AED 8.2 billion (about $2.2 billion), from 6.7 percent of GDP in 2016, and 10.2 percent of GDP in 2018-2020. The agency expects the increase to come from the consolidation of Sharjah’s municipalities’ accounts in the budget in 2017 (after the Roads and Transport Authority was consolidated in 2015), substantial transfer payments from Sharjah’s government-related entities in 2017, and a revenue increase from the application of the planned value-added tax starting 2018.
S&P notes Sharjah’s economy is supported by a diverse production base, the real estate and business services sector accounting for 22 percent of GDP, manufacturing 16 percent, and wholesale and retail trade for 12 percent.
Despite regional economic challenges, S&P projects the emirate of Sharjah’s real GDP growth to average 2.4 percent in 2017-2020 (about 5% on average in nominal terms). The agency expects consumption, investments, construction, and tourism to improve and consumer confidence to strengthen as oil prices have started to recover on the back of the OPEC’s (The Organization of the Petroleum Exporting Countries) agreement to cut output.
Source: S&P, Government of Sharjah
Note: All figures and projections are S&P, except Government of Sharjah 2017 budget figures