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Thu 8 Nov 2018 02:02 PM

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GCC sovereign financing set to drop to $300bn

S&P Global report says the decrease in demand is due to higher oil prices and government policy responses

GCC sovereign financing set to drop to $300bn

The GCC sovereigns' financing needs are accumulating at a slower pace with a total of $300 billion between 2018 and 2021, the majority pertaining to Saudi Arabia, compared to $450 billion in 2015-2017, according to a report by financial analytics firm S&P Global.

The drop is due to higher oil prices and government policy responses, with total funding requirements over 2015-2021 estimated to amount to $750 billion.

The report expects a 70:30 financing split between debt and assets during the time period, with Bahrain financing almost entirely with debt, while Kuwait and Abu Dhabi relying on assets.

It also forecasts the average GCC central government fiscal deficit to remain largely stable at 6% of GDP, while the average net asset position will drop from 130% of GDP in 2017 to 110% of GDP in 2021.

On the other hand, apart from Oman and Bahrain, GCC governments continue to have an exceptionally high level of government liquid assets at their disposal.

GCC sovereigns' combined central government deficit has also massively improved, and is estimated to be around $75 billion in 2019 (5.5% of combined GDP), much below the 2016 nadir of $190 billion (16% of combined GDP).

However, GCC governments' net debt positions have largely fallen since oil prices dropped in 2015. Debt-servicing costs now account for a much bigger proportion of fiscal revenue. According to S&P Global, the situation will only reverse in the event of a significant fiscal consolidation or sharp rise in oil prices.

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