Gulf states ‘need innovative funding solutions to keep up capital spen

11/02/2016 05:18 AST

GCC states may have to look at innovative dorms of finance to pay for its big infrastructure bill, according to Standard & Poor’s Ratings Services Standard & Poor’s says that Gulf sovereigns as well as the region’s banks will have fewer resources at hand to support the region’s infrastructure rollout plan over the next years — especially if oil prices decline further or remain low for longer.

Low oil prices will constrain the amount of funding available to Gulf sovereigns and banks to support the region’s substantial infrastructure bill in coming years.

“This is one reason why Gulf countries are starting to look at alternatives such as public-private partnerships,” said Standard & Poor’s credit analyst Karim Nassif in a new report Standard & Poor’s Ratings Services estimates that Gulf sovereigns’ capital spending overall over the next four years will be $480 billion, of which about 60 percent — 70 percent will go to infrastructure projects.

“And, we estimate that Gulf government spending on projects alone — including infrastructure contracts awarded over the period 2016-2019 — could be about $330 billion,” added the report.

“Taking this and other research into account, we estimate that about $50 billion out of the $330 billion that we think will be spent on projects will be allocated specifically for infrastructure (including transport-related projects),” it said.

“This compares with our estimates of about $604 billion in projects (including $100 billion of infrastructure projects) that will need funding through 2019,” added the report. “The difference between our estimates of capital spending on projects and project contracts awarded is as large as $270 billion through 2019,” it added.

“In our view, Gulf governments are protecting capital spending as a share of overall expenditure to support growth and further their diversification strategies,” S&P said. “At the same time, Gulf sovereigns are cutting in areas where they can afford to, or for what we consider to be nonessential infrastructure spending. Saudi Arabia, for example, reduced its 2016 transport and infrastructure budget by 63 percent from the previous year,” said the report.

“This for us illustrates the challenge Gulf countries will face to pay for infrastructure through traditional sources, including government funding,” S&P said.

Arab News