Past vs. Present: GCC support packages to MENA
(Report by S&P Global)
Saudi, the UAE, Kuwait, and Qatar pledged this year to give around $50 billion in total aid to 10 countries in the Middle East and Africa, indicating evolving geopolitical priorities and a shift to a more active foreign policy.
These GCC donors disbursed a similar amount over 2011-2018 to a smaller group of allies–including Jordan, Egypt, Bahrain, Morocco, and Oman–to ensure political and social stability in a period of regional disruption.
Our expectation that the higher-rated GCC donors would provide additional, timely support to Bahrain, Oman, and Jordan, if needed, provides a boost to our sovereign ratings on these countries.
Summary of historical GCC aid disbursement
Jordan: As a proportion of GDP, funding support from GCC countries has been
highest for Jordan. Saudi Arabia, Kuwait, the UAE, and Qatar had pledged $4
billion in investment projects, of which $3.75 billion has been disbursed as of 2018. Jordan
also receives support from the U.S. in the form of budget grants, military aid, and guaranteed
Eurobonds. Budget grants from the U.S. (excluding military aid and guaranteed bonds) have
totaled $8 billion over 2011-2018, or on average 2.8% of GDP annually.
Egypt: Egypt has received the most GCC donor support in absolute terms, particularly following the regime change from President Mohamed Morsi of the Muslim Brotherhood in 2013. In the 2013-2014 fiscal year, GCC funds came in the form of budget grants, deposits in the central bank, and grants for the purchase of energy products. Since the sharp fall in oil prices and its impact on GCC fiscal balances, Saudi Arabia, the UAE, and Kuwait ended budget grants (apart from a capital grant from the UAE in 2016-17) but extended maturing deposits in the central bank in 2017 and 2018. Saudi Arabia has steadily increased deposits on an annual basis, with $7.5 billion outstanding as of end-October 2018. The UAE and Kuwait have deposits of $5.9 billion and $4 billion, respectively, in the central bank.
Bahrain and Oman: GCC countries committed $10 billion over 10 years in project funding to Bahrain and Oman in 2011 via the GCC Development Fund to support economic development. However, disbursements thus far have been very slow.
We also note that Saudi Arabia had granted its share of oil revenues from the shared Abu Sa’afa
field in 1996 to Bahrain for several years to support Bahrain’s public finances. Saudi Arabia and
Bahrain reverted to sharing the revenues from the field in 2004.
Morocco: Following a series of protests in 2011-2012, the GCC approved allocating $5 billion in funding for development projects to Morocco in 2011 over five years. This has contributed significantly to Moroccan fiscal and external revenues. No agreement on new grants has been announced yet. The absence of renewed GCC support would have an adverse impact on Morocco’s external and fiscal position, in our view.
Summary of new GCC aid pledges
Bahrain: Bahrain has been experiencing high fiscal deficits and rising debt and low levels of foreign exchange reserves. We assume project funds from the GCC Development Fund under the existing package will continue until 2021 and support economic activity. The GCC countries announced a new aid package in October 2018 of $10 billion, which we expect will be distributed over five years subject to the implementation of fiscal reforms. We forecast that Bahrain’s fiscal deficits will narrow over the period. The nature of the funds and disbursement schedule are unclear. We currently assume that support will come in the form of concessional lending, which should reduce Bahrain’s funding pressures and borrowing costs and stabilize foreign currency reserves over the period (depending on actual disbursements).
Jordan: Following widespread protests in Jordan in June 2018 over the government’s fiscal austerity measures, Saudi Arabia, Kuwait, and the UAE agreed to provide $2.5 billion in aid over five years. Of this amount, we understand that more than $1 billion in deposits will be deposited into the central bank before end-2018. The authorities have shared that the grants portion is very small and the remaining amount will likely be directed to project funding.
Qatar has pledged $500 million of investment in Jordan and jobs for 10,000 Jordanians in Qatar,
which will support remittance inflows.
Ethiopia: Abu Dhabi has pledged to provide $3 billion to Ethiopia, with $1 billion in deposits and $2 billion in project funding to Ethiopia. The new support is a sign of endorsement for the new Prime Minister Abiy Ahmed and his reform agenda, which includes a peace deal with Eritrea. Disbursement of these funds will provide a major lifeline to Ethiopia’s weak external position, which is weighed down by gross foreign currency reserves of only around $3 billion, covering around two months of current account payments.
Turkey: Qatar announced a $15 billion support package in the aftermath of Turkey experiencing a currency crisis in August 2018. It includes a currency swap of up to $3 billion, with the rest likely to come through other channels, including foreign direct investment. In our view, if implemented, the package could provide some support to the Turkish economy, even though the financing will likely come over a number of years rather than be front-loaded.
Lebanon and Iraq: GCC countries pledged concessional loans to Lebanon and Iraq during international donor conferences in 2018. However, loans are conditional on several fiscal and economic reforms as well as political factors. Especially in Lebanon’s case, the delivery of the loans could be unreliable given the historical track record and the country’s volatile relations with the GCC.
Oman: We forecast limited new aid to Oman at this point, primarily because Oman has not requested it and financial pressures are gradually receding as average oil prices are relatively higher. In addition, Oman is accessing international capital markets to fund its deficits.