Sunday , August 14 2022

Over the next three years GCC sovereignty needs over $ 30 billion


Saudi Arabia accounts for a significant portion of the accumulated funding needs between 2018 and 2021

DUBAI: According to the credit rating agency Standard & Poor 's, the cumulative financial demand of the sovereigns of the Gulf Cooperation Council (GCC) will reach $ 300 billion ($ 1.1 trillion) between 2018 and 2021 It will exceed Saudi Arabia (S & P).

Demand for capital in the GCC region is increasing at a slower pace due to rising oil prices and improved fiscal conditions resulting from government policy responses.

"GCC sovereigns" have improved much more by consolidating central government deficits, and we expect to reach about $ 75 billion by 2019 [5.5 per cent of combined GDP], The lowest of $ 191.6 billion in 2016 [16 per cent of combined GDP]"Said S & P analyst Benjamin J. Young.

Despite improved financials this year, the GCC government's net debt ratio deteriorated sharply as oil prices declined in 2015 and debt-servicing costs accounted for a large portion of fiscal resources.

"We do not expect this situation to reverse unless there is significant fiscal consolidation or oil price spikes, and we expect the balance of the GCC central government to remain in the red until at least 2021. We expect the GCC Demand for previous funds of $ 450 billion [or 12 per cent of combined GDP], Estimated to be 300 billion dollars from 2018-2021 [5 per cent of GDP]"Young said.

S & P estimates that the total funding requirement for 2015-2021 will be about $ 750 billion. While the fiscal imbalance is expected to continue, oil prices have nearly tripled from $ 29 per barrel to $ 80 per barrel. S & P assumes oil prices will drop to $ 55 / bbl by 2021.

Despite the fact that many GCC governments have introduced major fiscal consolidation measures including the introduction of VAT, the average GCC budget deficit is expected to slightly increase from 5.5% in 2018 to about 6% of GDP.

"Our assumptions about falling oil prices and higher spending are likely to offset the planned increase in imports for both Abu Dhabi and Kuwait and increase the fiscal deficit, but the denominator effect of GDP growth is 6 percent of the region's GDP We must maintain fiscal deficits, "Young said.

Saudi Arabia's deficit is expected to spend $ 300 billion in nominal GCC sovereigns, but the share of GDP is similar to 5% in 2021 in Abu Dhabi and Oman. However, Kuwait accounts for 20% of the total, reflecting the fiscal deficit, which is about 13% of GDP.

According to S & P, the average GCC central government budget deficit is expected to be generally stable during our forecast period, which is equivalent to 6% of GDP. GCC's net asset stake is 110% of GDP in 2021 and 130%

In addition to Oman and Bahrain, the GCC government has an exceptionally high level of government liquid assets.

Fund channel

There are two basic mechanisms by which the GCC government can meet the funding requirements of asset reduction or debt. Demand for large funds implies an increase in debt each year, a weakening of asset position, or both. The cost will be an important factor in deciding which course to take. In many cases, it may be cheaper to issue a debt than to give up the return on investment.

"The ability of sovereigns to raise funds through debt issuance depends on the capacity of the various markets, among other factors, the liquidity conditions of the local banking system and the product of the needs of international investors to increase GCC sovereignty exposure in a relatively short period of time "This can also reflect investor perceptions of geopolitical geopolitical risks," Young said.

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