Fitch Ratings - London: Fitch Ratings has affirmed the United Arab Emirates' (UAE) Long-Term Issuer Default Ratings (IDRs) at 'AA-' with a Stable Outlook. A full list of rating actions is at the end of this rating action commentary.
The 'AA-' rating reflects the UAE's low consolidated government debt, strong net external asset position and high GDP per capita. It benefits from Abu Dhabi's (AA/Stable) sovereign net foreign assets (164% of UAE GDP in 2025), which are among the highest of Fitch-rated sovereigns. These strengths are balanced by weak governance indicators relative to rating peers, high geopolitical risk, the UAE's high dependence on hydrocarbon income and the significant leverage of government-related entities (GREs).
The Stable Outlook reflects the expected resilience of oil export revenues during the Iran war, which largely offsets the immediate negative impact of the war, as well as abundant fiscal and external buffers, and our expectation that individual Emirates will bear the cost of the war rather than the federal government.
IranWar Risks: Fitch expects a gradual re-opening of the Strait of Hormuz from July. However, the course of the war is highly uncertain. There are significant risks of a renewed flare-up, which could include greater disruption to oil and gas exports due to damage to energy production, processing and transportation assets, as well as a prolonged closure of the Strait, both of which would weigh on the UAE's credit profile. The damage from the war on non-oil growth and economic diversification is unclear; the longer and more structural the deterioration in the regional security environment, the greater the adverse impact would be, which could challenge the sovereign balance sheet.
Resilient Hydrocarbon Revenue: Abu Dhabi's 2026 export revenues will be higher than our pre-war forecasts despite the disruption, as higher prices (USD87/bbl average in 2026) and exports via pipeline to Fujairah offset lower volumes through the Strait of Hormuz. Crude oil constitutes the bulk of exports, and we consider Abu Dhabi's oil export infrastructure less vulnerable to long-term damage than more concentrated and bespoke downstream oil or liquefied natural gas plants.
Economic Contraction: We project real GDP to shrink by 4.8% in 2026, with a 3.2% contraction in non-oil GDP and Dubai's GDP shrinking by close to 7%. Fitch expects Dubai's real GDP to remain below its 2025 level in 2027 as investments are delayed and tourism and expat inflows return only slowly. Fitch expects all the Emirates will put recovery programmes in place, but trend growth will not rapidly return to pre-war levels. Hydrocarbon GDP will contract by about 10% in 2026 and strongly rebound in 2027 with oil production no longer constrained by OPEC+ quotas.
Budget Surpluses: We estimate the consolidated budget of the UAE will remain in surplus in 2026 at 4.5% of GDP despite a near 20% rise in spending to mitigate the immediate impact of the war and our expectation of large post-war recovery programmes. Fitch expects surpluses in Abu Dhabi and Dubai and budget deficits in Ras Al Khaimah (A+/Rating Watch Negative) and Sharjah (not rated). We expect GRE spending to rise significantly for similar reasons.
Small FG: The federal government (FG) is small, with revenues and expenditure close to 4% of GDP. Its remit is centred on the provision of essential public services such as infrastructure, healthcare, education and immigration and security. It is required by law to balance its current budget (excluding capex) and has a record of broadly balancing the overall budget with intra-year adjustments of spending and contributions from emirates to adjust to shocks.
Moderate Consolidated Government Debt: Consolidated UAE government debt is forecast to rise to 27% of GDP in 2026, from 24.3% of GDP at end-2025, which was well below the 'AA' category median of 50.3%. Individual emirates have varied debt profiles. We project Abu Dhabi's debt will increase as it continues to show a preference for debt over asset drawdowns, Sharjah to borrow to fund deficits, the FG to build the yield curve while Dubai's debt will be flat.
High Economy-Wide Leverage: Fitch views the UAE as having high leverage in its economy. We estimate overall contingent liabilities from GREs of the emirates and the FG in 2024 at about 63% of UAE 2024 GDP. Based on publicly available data, a large share of state-owned enterprise debt is at healthy entities with little risk, but many do not disclose financial data.
Close Links with Abu Dhabi: We judge that close political and budgetary links, along with the strong influence of Abu Dhabi over the FG budgeting and the essential nature of public services it provides place the FG higher in Abu Dhabi's support hierarchy than individual emirates, should it be required. Abu Dhabi does not provide an explicit guarantee that would ensure unconditional and timely support to the FG but has significant ex-ante and ongoing controlling power over the FG's revenue and spending.
External Buffers: The Central Bank of the UAE data showed a 9% drop in FX reserves to USD277 billion in March 2026. In our view, the high starting point of FX reserves combined with the large amount of Abu Dhabi Investment Authority assets provide ample to buffers to maintain macro stability and we do not view discussions around a swap line with the US Fed as a sign of stress. We project a large drop in the current balance to 1.3% in 2026 from 10.6% in 2025.
Banks Resilient: UAE banks appear resilient under Fitch's base case for the war, reflecting sound financial metrics, and ample liquidity and capital buffers. Banks' Viability Ratings could face risks from asset-quality deterioration under an adverse scenario in which the Iran war has severe effects, with real estate lending the most likely source of stress.
