S&P sees Abu Dhabi, Bahrain economies contracting on oil, virus

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DUBAI (May 30): Abu Dhabi’s economy will contract 7.5% this year, S&P Global Ratings said, citing lower oil production and the coronavirus pandemic.

“Abu Dhabi’s fiscal position is underpinned by hydrocarbon revenue and affected by oil-price movements, despite the government’s efforts to increase non-oil revenue,” the agency wrote in a report dated May 29.

The ratings company said Abu Dhabi’s economy may recover gradually from 2021, on the back of higher oil prices and improved domestic demand.

S&P expects the United Arab Emirates’ central bank to maintain the dirham’s peg to the US dollar “backed by its foreign international reserves and the government’s large external assets.”

Bahrain’s economy will shrink 5% this year because of low oil prices, although government stimulus measures should provide some support, S&P said. The ratings company expects Bahrain’s economy to rebound in 2021 as oil prices recover and regional activity increases.

Following the US$10 billion bailout Bahrain received from the Gulf Corporation Council in 2018, the likelihood of more aid from neighboring nations will “help maintain confidence in the Bahraini dinar’s peg to the US dollar.”