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Mon 17 Oct 2016 01:56 PM

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Revealed: GCC sovereigns could need $560bn by 2019 as low oil price bites

Bulk of financing needs will come from Saudi Arabia amid era of lowe oil prices, says Standard & Poor’s

Revealed: GCC sovereigns could need $560bn by 2019 as low oil price bites
(Stan Honda/AFP/GettyImages)

GCC sovereigns’ cumulative funding requirement could total $560 billion between 2015 and 2019 as the region’s fiscal deficit continues to widen as a result of low oil prices.

The latest analysis from rating agency S&P Global Ratings says the region’s funding requirement has been mounting since 2015 when the drop in oil revenues turned fiscal surpluses into deficits.

S&P said it estimates that, in nominal terms, GCC sovereigns’ combined fiscal deficit will reach $150 billion (12.8 percent of combined GDP) in 2016 alone.

Per country, as a proportion of GDP, these deficits are expected to average around 10 percent per year in Bahrain, Oman, Kuwait, and Saudi Arabia, and 4 percent on average in Abu Dhabi and Qatar over 2016-2019, S&P said.

The report estimated that, as a result, GCC sovereigns’ financing needs will likely remain “substantial” over the years to 2019 given the region’s dependence on hydrocarbons – and could likely reach $560 billion.

“The resulting imbalances [from deficit positions] have been central to our view of a significant deterioration in the region’s creditworthiness over the past 18 months,” the report said.

“Although most governments’ balance sheets remain a rating strength, the related assets are finite. 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.”

The bulk of their financing needs will come from Saudi Arabia, S&P predicted. GCC sovereigns are expected to predominantly use debt financing, however, tighter domestic and international liquidity conditions could complicate these plans.

Over 2015 to 2019, Bahrain’s net debt position is expected to more than double, Oman’s net asset position to reduce to nearly zero, Saudi Arabia’s net asset position to weaken by 30 percent and Kuwait’s to decline by nearly 20 percent.

The impact on Abu Dhabi and Qatar’s net asset positions will be more moderate, S&P said. “Notably, however, apart from Oman and Bahrain, GCC governments still have substantial reserves at their disposal,” the report added.

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