Strong fiscal position supports Sharjah's credit strength

The credit strength of Sharjah is primarily supported by its very strong fiscal and government debt position, Moody's Investors Services said in a report on Thursday.

Sharjah's A3 rating is primarily supported by the emirate's very strong fiscal and government debt position, characterised by small fiscal deficits, low levels of government debt and manageable wider public-sector debt.

According to the rating agency Sharjah's credit strength is also supported by the relatively higher degree of economic diversification compared to the rest of the UAE (UAE, Aa2 stable) and countries in the Gulf Cooperation Council (GCC).

The emirate's government finances benefit significantly from membership in the federation of the UAE, because the federal Ministry of Finance funds a large portion of public services for UAE nationals directly from its own budget, including defence and a basic level of education and health care. Sharjah's competitive manufacturing sector and its relatively higher degree of economic diversification compared to other emirates in the Gulf Cooperation Council (GCC) also provides credit strength.

Although government debt is at low levels, containing the rising trend is a key challenge. The narrow government revenue base is a further weakness, which is amplified by very limited hydrocarbon reserves and projected declines in production. The small size of Sharjah's economy and close linkages with the rest of the UAE Dubai in particular expose the emirate to macroeconomic volatility.

Credit positive developments would include the successful implementation of the government's Public Finance Modernisation Programme, including deficit reduction and stabilisation of the government debt ratio. Enhanced data availability (scope, timeliness, accessibility) would improve transparency, and therefore also be credit positive.

Sharjah currently has 19 industrial zones and two Free Zones, with further expansion under way. Development of the logistics sector is supported by Sharjah International Airport and Air Arabia (17% owned by the government of Sharjah). In addition, Sharjah has three ports, and is the only emirate with deepwater port facilities on both sides of the Straits of Hormuz, Port Khalid, Khor Fakkan and Hamriyah.

Education and human capital formation are key areas under the social development agenda, with Sharjah's ruler publicly stating his commitment to providing high-quality education..

We assess Sharjah's institutional strength as High, which balances very high scores for institutional framework and government effectiveness, which are based on the World Bank's Worldwide Governance Indicators for the UAE federation, 3 with moderate levels of policy credibility and effectiveness, and also captures shortcomings with regard to transparency, said the report.


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