Rating agency Moody’s has issued a negative rating outlook to the Government of Sharjah citing its deteriorating fiscal position and the absence of significant fiscal consolidation measures.
Spending increases have outweighed revenues leading to further accumulation of government debt, stated Moody’s. Sharjah’s debt-to-GDP ratio has increased to 25.4% in 2018, up from 19.5% in 2017 and more than twice the level when the sovereign rating was first issued in 2014.
At the same time, Sharjah’s debt-to-revenue ratio increased from 209% in 2017 to 246%, a level significantly higher than the A-median, stated Moody’s. While this ratio may be reduced in 2019 thanks to the introduction of VAT, Moody’s expects the government’s debt burden to rise again in 2020.
The government’s various revenue-raising initiatives have had “a mixed response” according to Moody’s. While VAT revenue exceeded expectation, traditional revenue sources proved to be volatile and government expenditure in 2018 exceeded the budget by 9.3% and were 24% higher than in 2017.
While the outlook on its long-term issuer rating has been downgraded from stable to negative, the rating itself has been affirmed at A3.
Moody’s stated that the A3 rating continues to be supported by a “reasonably well diversified economy, relatively high income levels [and] low non-financial public sector debt” as well as Sharjah’s membership of the UAE’s federal structure.
But, given the negative outlook, Moody’s stated that an upgrade is “unlikely in the foreseeable future”.
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