Abu Dhabi and Kuwait governments hold liquid assets which are more than 100 per cent of their GDP, which positively effects the ratings of the countries and help them combat effects of economic cycles.
According to global ratings agency S&P forecast, Kuwait, Norway and Abu Dhabi control the highest liquid assets. Data revealed that general government liquid assets of Abu Dhabi are estimated to grow from $618 billion (Dh2.268 trillion) in 2018 to $686 billion (Dh2.517 trillion) in 2021. It's estimated that the emirate's liquid assets amounted to 232 per cent of GDP in 2018 which will increase to 249 per cent by 2021.
Similarly, Kuwait's general government liquid assets are predicted to reach $522 billion in 2018 from $474 billion 2015. They are forecast to expand to $599 billion in the next three years. Similarly, the country's general government liquid assets are forecast to reach 384 per cent of its GDP this year and it's expected to reach 406 per cent by 2021.
Benjamin Young, primary credit analyst, S&P Global, said for both Abu Dhabi and Kuwait, expectation of general government liquid asset growth is premised on a number of factors that include forecast of larger fiscal surpluses primarily resulting from higher oil prices and underlying assumptions on accumulated income generated by those assets.
A sovereign's stock of liquid financial assets comprises government deposits in financial institutions, minority arms-length holdings of incorporated enterprises that are widely traded; and the balances of government-run pension. However, S&P generally does not consider central bank reserves to be part of government liquid assets. S&P expects Kuwait and Abu Dhabi to maintain liquid assets above 100 per cent of GDP. "Excluding Kuwait, we expect the average liquid-asset-to-GDP ratio for all GCC members will remain flat at about 110 per cent of GDP until 2021, and that Bahrain will drop out of the peer group. However, on average, we expect the ratios will decline by about 8 per cent (or 14 per cent of GDP) in 2018 versus 2017," the analysts said.
When general government external assets are sufficiently large, the sovereign will be able to utilise a significant portion of them to support its creditworthiness and prevent a default in the event of financial stress, S&P said in a note released on Monday."We estimate that the nominal value of overall GCC government liquid assets fell by roughly $90 billion in 2015, although Kuwait, Abu Dhabi, Qatar and, at that time, Saudi Arabia's liquid-assets-to-GDP ratios stayed well above 100 per cent," commented S&P analysts.
The report noted that the decline was mainly because governments used their assets, or the investment returns they generated, to finance fiscal deficits caused by the drop in oil prices. Kuwait and Abu Dhabi were the exceptions, where nominal asset growth is expected to increase.