GCC funding needs to rise sharply says S&P report

MANAMA: Government funding needs in the GCC have increased significantly in 2020, as low oil prices and the economic repercussions of the Covid-19 pandemic have significantly widened fiscal deficits, S&P Global Ratings has said.

In a new Credit FAQ report issued yesterday, the US-based ratings agency said it estimates GCC sovereigns’ central government deficits will reach about $490 billion cumulatively between 2020 and 2023.

About 55 per cent of this deficit relates to Saudi Arabia, the GCC’s largest economy, followed by Kuwait with 17pc and Abu Dhabi with 11pc.

“We expect total GCC government debt to increase by a record-high of about $100bn in 2020 alone, with an additional $80bn run-down in government assets to finance an aggregate GCC central government deficit of about $180bn.

Based on our macroeconomic assumptions, we expect to see GCC government balance sheets continue to deteriorate up until 2023,” said S&P Global Ratings credit analyst Trevor Cullinan.

“Most GCC sovereigns have demonstrated ready access to the international capital markets this year, and are in the enviable position of having substantial pools of external liquid assets to fund their fiscal deficits should market access become constrained.”

Saudi Arabia’s deficit makes up the majority of the GCC fiscal deficit in nominal terms.

As a percentage of GDP, however, Kuwait has the highest 2020 central government deficit-to-GDP ratio of 39pc, followed by Oman (17pc), Saudi Arabia (15pc), Abu Dhabi (13pc), Bahrain (12pc) and Qatar (10pc).

GCC governments have, for the most part, borrowed rather than liquidated their assets to fund their deficits, said S&P.

The agency expects that debt issuance will meet about 60pc of the $490bn financing requirement in 2020-2023, basing the assumption on the financing trends of the past few years, governments’ explicitly stated policy decisions, and its view of the availability of assets.

S&P sees Bahrain, Oman, Qatar and Saudi Arabia financing the vast majority of their deficits through debt, while Abu Dhabi and Kuwait are likely to draw more on their assets.

Source: http://www.gdnonline.com/Details/838173/GCC-funding-needs-rise-sharply-says-SP-report