Research Update:

Emirate of Ras Al Khaimah Outlook

Revised To Negative On Institutional
Weakness; 'A/A-1' Ratings Affirmed
Primary Credit Analyst:
Trevor Cullinan, Dubai (971) 4372-7113; trevor.cullinan@standardandpoors.com
Secondary Contact:
Benjamin J Young, London (44) 20-7176-3574; benjamin.young@standardandpoors.com
Table Of Contents
Overview
Rating Action
Rationale
Outlook
Key Statistics
Related Criteria And Research
Ratings List
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Research Update:
Emirate of Ras Al Khaimah Outlook Revised To
Negative On Institutional Weakness; 'A/A-1'
Ratings Affirmed
Overview
We view the underdeveloped government institutions and the availability
and timeliness of economic and demographic data in the Emirate of Ras Al
Khaimah as ratings weaknesses. We consider Ras Al Khaimah's fiscal risks
to be limited, due to the government's minimal spending responsibilities,
its strong government balance sheet, and ongoing indirect financial
support from the United Arab Emirates.
We are therefore revising our outlook on on Ras Al Khaimah to negative
and affirming our 'A/A-1' ratings.
The negative outlook reflects the at least one-in-three possibility of a
negative rating action over the next two years if the effectiveness and
predictability of Ras Al Khaimah's government institutions and data
availability remains at current levels.
Rating Action
On May 9, 2014, Standard & Poor's Ratings Services revised its outlook on the
Emirate of Ras Al Khaimah to negative from stable. At the same time, we
affirmed our 'A/A-1' long- and short-term foreign and local currency sovereign
credit ratings on Ras Al Khaimah.
Rationale
We view progress in the development of Ras Al Khaimah's institutions as slow.
In our view, the depth of key personnel is limited, and supporting
organizational structures in some of Ras Al Khaimah's institutions are weak,
which results in a lack of continuity and predictability. We consider that the
availability and timeliness of demographic and economic data--including
population, national income, and external accounts--is among the weakest of
the sovereigns we rate, and we see this as a ratings constraint. We could
therefore lower the ratings on Ras Al Khaimah if the effectiveness and
predictability of Ras Al Khaimah's government institutions and data
availability remains at the current levels.
The affirmation incorporates our view that Ras Al Khaimah's fiscal risks are
generally limited, due to the government's minimal spending responsibilities,
its strong balance sheet, and its ongoing indirect financial support from the
United Arab Emirates (UAE). The UAE federal government, funded mostly by Abu
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Dhabi, covers most of the operating expenditures of the seven emirates,
including Ras Al Khaimah, that comprise the UAE. These costs include health
care, education, energy provision, and defense. Major capital costs--such as
the development of schools, hospitals, trunk roads, and the provision of
adequate energy generation and distribution--are also borne at the federal
level. Individual emirates, including Ras Al Khaimah, have limited fiscal
obligations that are primarily related to local infrastructure and services,
and capital spending to develop emirate-level projects. Consequently, Ras Al
Khaimah has low fiscal risks. We estimate Ras Al Khaimah's net general
government asset position at about 8% of GDP in 2014-2017.
Official government statistics indicate an increase in population to 413,000
in 2010, from a previous estimate of 279,000 for that same year. We learned of
the revision to the data series when it was published in the emirate's 2012
Statistical Yearbook. However, we do not consider a population increase of
more than 50%--from the official population estimate of 267,000 in 2009--as
realistic. We understand that the government will review the accuracy of the
data over 2014-2015. Should the data be confirmed, our estimate of Ras Al
Khaimah's GDP per capita in 2014 could fall to about $17,500 from
approximately $24,500. However, our estimate could be offset by the possible
incorporation into the nominal GDP data of Ras Al Khaimah's free trade zones.
This, all things remaining equal,would likely raise overall GDP.
As per our criteria, while data on Ras Al Khaimah's balance of payments and
external position is not available, we use UAE data to assess external risks
in the emirate. We think that Ras Al Khaimah's external risk is limited by the
UAE's extremely strong external balances, combined with its system of fiscal
transfers and banking coordination. We expect the UAE's current account to
show an overall surplus of about 7% of GDP in 2014-2017. Ras Al Khaimah's sole
domestically controlled bank--RAKBANK, also known as the National Bank of Ras
Al Khaimah--sits within the supervisory remit of the central bank of UAE. In
our view, the UAE's monetary and banking union limits the external risks of
the smaller emirates, including Ras Al Khaimah, and would provide a cushion in
the event of an external shock.
Outlook
The negative outlook reflects our view of at least one-in-three possibility
that we could lower the rating over the next two years if we observed no
improvement in the effectiveness and predictability of Ras Al Khaimah's
government institutions and data availability. We could also lower the ratings
if our estimate of Ras Al Khaimah's economic or fiscal performance weakens.
We could revise the outlook to stable if Ras Al Khaimah's economic indicators
were to remain in line with our current expectations and the effectiveness of
government institutions were to improve, evidenced by an increased ability to
withstand the loss of key personnel without significant disruption.
Furthermore, we would view increased economic diversification in areas not
tied to the construction industry as positive for the ratings.
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Research Update: Emirate of Ras Al Khaimah Outlook Revised To Negative On Institutional Weakness; 'A/A-1'
Ratings Affirmed
Key Statistics
Table 1
Emirate of Ras Al Khaimah - Selected Indicators
2007 2008 2009 2010 2011 2012 2013e 2014f 2015f 2016f 2017f
Nominal
GDP (US$
bil)
3.2 4.4 4.8 5.2 6.2 6.8 7.3 7.9 8.6 9.3 10.1
GDP per
capita
(US$)
14,596 19,096 17,847 18,641 21,146 22,389 23,189 24,461 25,803 27,218 28,711
Real GDP
growth
(%)
3.4 59.3 7.8 6.9 16.9 6.7 6.0 6.0 6.0 6.0 6.0
Real GDP
per capita
growth
(%)
(0.3) 53.1 (6.7) 2.3 10.6 3.4 2.9 2.9 2.9 2.9 2.9
Change in
general
government
debt/GDP
(%)
14.7 5.6 1.0 10.8 (0.8) 2.7 2.9 (1.5) (0.7) 0.7 0.7
General
government
balance/GDP
(%)
7.5 (4.5) 4.9 5.2 4.3 2.9 1.6 3.3 3.3 3.3 3.3
General
government
debt/GDP
(%)
21.7 21.5 20.9 29.9 24.2 24.9 26.2 22.6 20.1 19.2 18.4
Net
general
government
debt/GDP
(%)
(23.8) (4.8) (5.4) (6.1) (2.7) 3.7 (11.9) (8.7) (8.7) (7.3) (6.1)
General
government
interest
expenditure/revenues
(%)
(2.6) (1.4) 3.2 3.6 4.8 5.9 5.6 5.7 4.9 4.3 4.2
Other dc
claims on
resident
non-government
sector/GDP
(%)*
60.8 71.9 92.3 83.3 73.3 68.5 67.4 66.9 67.0 66.1 65.0
CPI
growth
(%)
9.9 (23.1) 0.2 2.2 3.0 2.5 2.5 2.5 2.5 2.5 2.5
Gross
external
financing
needs/CARs
+ usable
reserves
(%)*
105.3 99.6 124.5 122.4 103.5 99.2 99.7 101.0 102.3 102.5 102.8
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Research Update: Emirate of Ras Al Khaimah Outlook Revised To Negative On Institutional Weakness; 'A/A-1'
Ratings Affirmed
Table 1
Emirate of Ras Al Khaimah - Selected Indicators (cont.)
Current
account
balance/GDP
(%)*
6.0 4.8 0.7 1.7 13.8 16.5 13.5 10.0 7.2 5.8 4.4
Current
account
balance/CARs
(%)*
7.7 5.9 0.9 2.1 15.1 17.2 13.6 9.8 6.9 5.5 4.1
Narrow
net
external
debt/CARs
(%)*
(186.7) (107.4) (140.7) (136.6) (100.6) (108.1) (112.7) (113.6) (113.2) (111.5) (102.9)
Net
external
liabilities/CARs
(%)*
(225.9) (136.7) (171.4) (162.7) (126.4) (138.6) (136.9) (132.8) (126.1) (119.5) (107.7)
*Indicators for the UAE as a whole only. Other depository corporations (dc) are financial corporations (other than the central bank) whose
liabilities are included in the national definition of broad money. Gross external financing needs are defined as current account payments plus
short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external debt maturing
within the year. Narrow net external debt is defined as the stock of foreign and local currency public- and private- sector borrowings from
nonresidents minus official reserves minus public-sector liquid assets held by nonresidents minus financial sector loans to, deposits with, or
investments in nonresident entities. A negative number indicates net external lending. e--Estimate. f--Forecast. CPI--Consumer price index.
CARs--Current account receipts.
The data and ratios above result from Standard & Poor's own calculations, drawing on national as well as international sources, reflecting
Standard & Poor's independent view on the timeliness, coverage, accuracy, credibility, and usability of available information.
Related Criteria And Research
Related Criteria
Sovereign Government Rating Methodology And Assumptions, June 24, 2013
Methodology For Linking Short-Term And Long-Term Ratings For Corporate,
Insurance, And Sovereign Issuers, May 7, 2013
Criteria For Determining Transfer And Convertibility Assessments, May 18,
2009
Related Research
Default Study: Sovereign Defaults And Rating Transition Data, 2013 Update,
April 18, 2014
Emirate of Ras Al Khaimah 'A/A-1' Ratings Affirmed On Strong Public
Finances; Outlook Stable, Nov. 22, 2013
In accordance with our relevant policies and procedures, the Rating Committee
was composed of analysts that are qualified to vote in the committee, with
sufficient experience to convey the appropriate level of knowledge and
understanding of the methodology applicable (see 'Related Criteria And
Research'). At the onset of the committee, the chair confirmed that the
information provided to the Rating Committee by the primary analyst had been
distributed in a timely manner and was sufficient for Committee members to
make an informed decision.
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Research Update: Emirate of Ras Al Khaimah Outlook Revised To Negative On Institutional Weakness; 'A/A-1'
Ratings Affirmed
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and critical issues
in accordance with the relevant criteria. Qualitative and quantitative risk
factors were considered and discussed, looking at track-record and forecasts.
The chair ensured every voting member was given the opportunity to articulate
his/her opinion. The chair or designee reviewed the draft report to ensure
consistency with the Committee decision. The views and the decision of the
rating committee are summarized in the above rationale and outlook.
Ratings List
Ratings Affirmed; Outlook Action
To From
Ras Al Khaimah (Emirate of)
Sovereign Credit Rating A/Negative/A-1 A/Stable/A-1
Ratings Affirmed
Ras Al Khaimah (Emirate of)
Transfer & Convertibility Assessment AA+
Senior Unsecured A
RAK Capital
Senior Unsecured* A
*Obligor: Emirate of Ras Al Khaimah.
Additional Contact:
SovereignEurope; SovereignEurope@standardandpoors.com
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Research Update: Emirate of Ras Al Khaimah Outlook Revised To Negative On Institutional Weakness; 'A/A-1'
Ratings Affirmed
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