Fitch Ratings says that the support extended this week to property developer Aldar demonstrates that contingent liabilities remain a risk to Abu Dhabi's balance sheet. But the emirate will not be subjected to as severe a strain as in 2008 and 2009, when its strong balance sheet enabled it to deal with such contingencies, despite much lower oil prices than today.
IMF stress tests suggest that further solvency support for the emirate's banks will probably not be needed. In addition, we believe that there are limits to the amount of further support Dubai might require, as it has better identified its core liabilities and no longer seeks to prop up its entire public sector. This is in contrast to 2008-2009, when sharply lower oil prices and negative returns for sovereign wealth funds coincided with capital injections for Abu Dhabi's banks, and to bolster Dubai.
Abu Dhabi's balance sheet remains exceptionally strong, and at current oil prices foreign asset growth should pick up to over 10%. As we said in September, "foreign assets provide a substantial cushion to absorb most conceivable economic or oil price shocks."
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