(MENAFN- The Peninsula) DOHA: GCC sovereigns"; four-year funding needs, ending the year 2019, has been estimated at $560bn. In nominal terms, GCC countries"; combined fiscal deficit will reach $150bn in 2016 alone. Going forward, to plug the deficit, the member countries will mostly rely on debt issuance and Qatar is expected to be one of the most active one, S & P Global Ratings said yesterday.
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. As a proportion of GDP, S & P expects that in 2016-2019 these deficits will average around 10 percent per year in Bahrain, Oman, Kuwait, and Saudi Arabia, and 4 percent on average in Abu Dhabi and Qatar.
'GCC sovereigns"; financing needs will likely remain substantial over the next several years, given the region";s almost uniform dependence on hydrocarbons. We forecast that the cumulative funding requirement could be as high as $560bn between 2015 and 2019…”, the ratings agency noted.
Saudi Arabia";s deficit makes up the majority (60 percent) of the GCC sovereigns"; financing requirement in nominal terms, but as a proportion of GDP it is similar to that of Bahrain, Oman, and Kuwait. S & P expects Qatar and Bahrain will finance the vast majority of their deficits through debt, whereas Oman, Saudi Arabia, and Abu Dhabi typically have a fairly even split of asset and debt financing; Kuwait is expected to use its assets to pay for most of its deficits.
Apart from Bahrain, regional sovereigns"; debt issuance was relatively sparse before 2016, particularly in foreign currency, and usually reserved for benchmarking or monetary policy purposes. Therefore, this year has been something of a watershed for the region, with both Abu Dhabi and Qatar placing large international issues ($5bn and $9bnrespectively) thus far.
In Qatar";s case, debt financing is a stated policy decision. In Bahrain and Oman, the size and nature of assets imply limited options for deficit financing. For example, S & P views Bahrain";s debt issuance as more likely than the sale of a substantial (and potentially growth enhancing) commercial asset or withdrawals from social security funds. In addition, Bahrain has been a relatively frequent issuer on domestic and international markets, and has recently launched a $1bn Eurobond and a $1bn sukuk. In Oman, there is also a recent regulatory changes that have raised the cap on domestic banks"; government debt holdings to 45 percent of equity from 30 percent.
'We base our projections for Saudi Arabia on the government";s financing performance track record, as well as estimates on domestic banks"; capacity to absorb government securities. For 2016, we estimate a fiscal deficit of just under $90bn $10bn of which has already been met through a reported syndication.”, the ratings agency said.
Moreover, it noted that an almost $30bn increase in domestic banks"; holdings of government debt and take into account a widely anticipated and imminent $10bn-$15bn Eurobond issue. The rest is expected to be met by drawings on assets. Assuming this trend will continue over the next three years, with the funding mix staying roughly equally divided between debt and assets, this would imply that Saudi Arabia";s debt issuance will total about $180bn by year-end 2019. The national pension fund is expected to purchase a portion of the government";s issuance.
Deposit growth in GCC banking systems has slowed dramatically since the double-digit expansion in 2012-2014 because hydrocarbon-related public-sector entities are the main depositors. Qatar";s banking system has the largest proportion of such deposits and shows the largest decline, as government spending on infrastructure remains high. Qatari banks"; net external debt has risen rapidly over 2015 and 2016, as these deposits have been replaced by foreign funding.
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