(MENAFN- The Peninsula) Satish Kanady | The Peninsula
The fallout of the pandemic on domestic demand and international trade will raise the Middle East governments' debt to GDP ratio at a significant rate.
EMEA (Europe Middle East and Africa) sovereigns entered 2020 with higher public and private debt than in the run-up to the global financial crisis. For those sovereigns, particularly in GCC with large commodity exposures and shallow domestic capital markets, creditworthiness has been under considerable pressure, according to S & P Global Ratings.
Compared with the lead-up to the 2008-2010 global financial crisis, when the net balance of rating outlooks on emerging sovereigns in EMEA was positive, emerging EMEA entered the pre-pandemic period with already deteriorating fiscal and lower average ratings. Between 2014 and 2019, median general government debt for the group increased by over 10 percentage points of GDP.
During 2020 alone, S & P expects, another rise in public debt of around 8 points of GDP on average. Partly as a consequence of weakening fiscal positions, the ratings on some of the most liquid emerging EMEA sovereigns, including some GCC countries, have been on a downward trajectory for the last six years.
Commenting on Qatar, S & P Global Ratings analyst Shokhrukh Temuro said the country's stable outlook indicates broadly balanced risks to the ratings.
'Despite a sharp economic contraction and low hydrocarbon prices, we don't expect the government's fiscal and external stock positions will materially deteriorate beyond our expectations. We expect a timely policy response from the government in the context of continued liquidity challenges in the international capital markets.
Before the outbreak of COVID-19, oil producers in Mena were, with some exceptions, showing gradual resolve in adjusting to the 2014-2015 decline in oil prices. Including investment income, during 2019, some economies like Qatar and Kuwait were running substantial public-sector surpluses .
However, this year's downside volatility in oil prices once again highlighted the overwhelming fiscal, GDP, and external dependency of the Mideast on oil receipts, alongside the social challenges to managing populations' economic expectations accordingly.
The reluctance of the Mena economies to take more aggressive fiscal and other policy measures unlike countries like Russia over the last decade, offers limited scope for the region for greater fiscal flexibility. While between2009 and 2014, Russian general government debt increased by only 2.5 points of GDP, in Oman and Qatar government debt levels increased by 55, 36 points of GDP, respectively. Meanwhile, reflecting how dollarized balance sheets and export receipts are, GCC monetary regimes remain fixed.
Offsetting high liabilities, the Gulf sovereigns continue to manage the world's largest stock of fiscal reserve assets via their sovereign wealth funds. The imputed return on these assets largely explains why fiscal positions are still--for the most part—tenable.
The long-term challenge remains: how to reset economies and budgets to permanently lower oil prices and diversify economies away from hydrocarbons. At current oil prices, no major GCC energy producer would run a budgetary surplus (excluding investment income), though Qatar comes close.
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