GCC sovereign funding needs to top $560 billion
* GCC sovereigns’ combined fiscal deficit in nominal terms will reach $150 billion in 2016
* Cumulative funding needs could be as high as $560bn between 2015 and 2019
* GCC governments, except Oman and Bahrain, still have substantial reserves
The lingering effects of decline of global oil prices since mid-2014 continue to haunt the Gulf Cooperation Council (GCC) economies. According to the latest figures from credit rating agency S&P, the GCC sovereigns’ combined fiscal deficit in nominal terms will reach $150 billion (12.8 per cent of combined GDP) in 2016 alone.
In the agency’s opinion, GCC sovereigns’ financing needs will likely remain substantial over the next several years, given the region’s almost uniform dependence on hydrocarbons.
The cumulative funding requirement of the region’s sovereigns could be as high as $560bn between 2015 and 2019.
The region’s funding requirement has been mounting since 2015, when the drop in oil-related revenue turned fiscal surpluses into deficits, although these differ among the sovereigns in scale and duration.
Notably, Saudi Arabia, the region’s largest economy, claims the best part of the fiscal financing needs.
The fiscal deficits of these economies, as a proportion of GDP, will average roughly ten per cent per year in Bahrain, Oman, Kuwait and Saudi Arabia, and four per cent on average in Abu Dhabi and Qatar during the period from 2016 and 2019.
Nonetheless, GCC governments, except Oman and Bahrain, still have substantial reserves at their disposal.
S&P expects that Bahrain’s net debt will have increased almost six-fold between 2014 and 2019, while Oman’s net asset position will likely decline to zero and Saudi Arabia’s by 30 per cent over the same period.
For Abu Dhabi, Kuwait, and Qatar, the impact of deficits will be more muted because of smaller deficits and greater asset stocks, highlighting a fiscal bifurcation of the region.
“The resulting imbalances and their likely impact have been central to our view of a significant deterioration in the region’s creditworthiness over the past 18 months. Although most governments’ balance sheets remain a rating strength, the related assets are finite,” said Benjamin J Young, credit analyst at S&P.
“Furthermore, international liquidity sources could start to dry up at a time when foreign inflows are most needed and the liquidity of domestic banking systems is diminishing. This creates uncertainty about how, and at what price, GCC sovereigns will cover their fiscal deficits,” he added.