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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 report.
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 agency said.
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),” said S&P.
“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.
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