Sharjah was downgraded to Ba1 from Baa3 by Moody’s with its outlook changed from negative to stable. Sharjah’s fiscal deterioration started in 2017 and aggravated in 2020 due to the pandemic’s impact and increased spending. The rating agency expects further significant deterioration in Sharjah’s fiscal strength over the next few years, and without credible fiscal adjustment, Sharjah’s debt burden will rise and weaken its debt affordability metrics. Sharjah’s fiscal deficit rose to 8% of GDP in 2021 from 7.1% of GDP in 2020 against the average of 1.7% of GDP during 2012-16 and 3.4% during 2017-19. Government debt stood at 41% of GDP in 2021, 34% of GDP in 2020 and only 13% of GDP in 2016. Moody’s expects that debt burdens will rise by 10% of GDP by 2023 and stand at over 60% of GDP by 2025, even as revenues increase to pre-Covid levels. The rating agency projects weakness in Sharjah’s debt affordability metrics with interest payments rising to 1.9% of GDP in 2023 from 1.3% of GDP in 2021. Moody’s notes that on the positive side, Sharjah benefits from the governance that it shares with the rest of UAE. This includes monetary policy effectiveness and banking regulation by the Central Bank of UAE. Besides, the Abu Dhabi government provides credit support to fellow emirates cities, including Sharjah.
Sharjah’s dollar bonds were trading lower with its 4.375% 2051s down over 1.15 points to 67.78 cents to the dollar yielding at 6.99%.