Arab News, Thursday, Nov 8, 2018 | Safar 30,1440
Saudi Arabia to lead $300bn regional funding drive says S&P
Gulf states will need to raise as much as $300 billion in funding over the next
three years with the lion’s share going to Saudi Arabia, according to a new
High oil prices mean that the funding needs of Gulf borrowers are accumulating
at a slower pace, S&P Global Ratings said in a report.
Still, GCC government net debt positions have significantly deteriorated since
2015 and now account for a much bigger proportion of fiscal revenue, the ratings
Saudi Arabia’s deficit alone accounts for about half of the Gulf states’
expected $300 billion financing needs — but as a proportion of overall GDP it is
broadly in line with Abu Dhabi and Oman.
Rising interest rates and tighter financing conditions may present a challenge
to some regional boomers according to S&P.
“Changes in domestic and international liquidity conditions could present
challenges for sovereign issuance and tilt the financing balance toward assets
from debt, or increase debt-servicing costs, as is particularly the case in
Bahrain (where interest payments account for 23 percent of government revenue),”
“We note that global liquidity is becoming scarcer and more expensive, while
regional banking sector liquidity remains adequate.”
The rising cost of debt may mean that some regional governments will
increasingly focus on asset sales.
Perceived regional geopoitical risk, most notably surrounding tensiions between
Iran and Saudi Arabia along with its Gulf allies as well as the standoff between
Qatar and some of its neighbors, could make some international investors wary of
the region and demand a higher risk premium.
S&P expects debt issuance to account for some 70 percent of the $300 billion
financing requirement of the Gulf states.
The ratings agency estimates that gross debt in the region has increased from an
average of 14 percent of GDP at the end of 2014 to an estimated 38 percent of
GDP by the end of 2018.
Bahrain and Qatar are expected to finance the vast majority of their deficits
through debt, while Dubai and Abu Dhabi are likely to rely more on their assets.
S&P expects Bahrain’s net debt to have nearly tripled between 2015 and 2021
while Oman would slip into a net debt position in 2019.
Saudi Arabia’s net assets are forecast to have nearly halved to 65 percent of
GDP by 2021.