Dubai: Sharp decline in oil prices, fiscal consolidation efforts and upcoming refinancing needs are expected to keep commercial debt issuance by Middle East and North Africa (Mena) governments, including GCC sovereigns, elevated in 2016, according to Standard & Poor’s.
The rating agency projects that the 13 Mena sovereigns that it rates will borrow an equivalent of $134 billion (Dh492.1 billion) from long-term commercial sources in 2016. This compares with total commercial borrowing of $143 billion in 2015.
The more than 70 per cent decline in oil prices since mid-2014 has weakened GCC countries’ public finances, resulting in government deficits for most sovereigns. The financing needs of some GCC governments are apparent, but it remains unclear in some cases exactly how the deficits will be financed, in terms of the mix between asset drawdowns and debt issuance.
The sizeable fiscal assets accumulated by Abu Dhabi, Kuwait, Qatar, and Saudi Arabia provide them with the option to either issue debt or liquidate some of these assets.
“Based on our assumptions, we now expect a rise in GCC sovereign gross commercial long-term borrowing to $45 billion in 2016, up from $40 billion in 2015 and $4 billion in 2014. Historically, the appetite for GCC sovereigns to increase their debt burdens has been relatively limited,” Trevor Cullinan an analyst at S&P said in Mena Sovereign Debt Report 2015.
According to S&P’s estimates, Saudi Arabia borrowed $26 billion in 2015. In Saudi Arabia, the government’s 14 per cent of GDP fiscal deficit in 2015 brought about a significant policy change. The government was close to paying down all of its debt in 2015. From July of that year, however, the government began a programme of debt issuance, with 20 billion Saudi riyal ($5.3 billion; Dh19.57 billion) issued each month between August and December.
S&P analysts expect Saudi Arabia’s debt stock to rise to 9 per cent of GDP in 2016 and to about 30 per cent by 2019.
“We expect Saudi Arabia to account for nearly 70 per cent of the GCC countries’ total borrowing in 2016 and to become the second-largest issuer of commercial debt in the Mena region,” S&P said.
In Oman, the government has issued a relatively significant amount of short-term debt (24 per cent of total commercial debt in 2015).
Outside the GCC, Egypt and Iraq are expected to be biggest commercial debt issuers in 2016. While Iraq issued $30 billion debt last year, Egypt issued $43.36 billion. In the current year both these countries are projected to issue $29.22 billion and $34.07 billion debt, respectively.
Total issuance from the region is projected to decline by 9 per cent this year compared to last year, largely because of the decline in issuance from Egypt. However, the total commercial debt stock from Mena sovereigns is projected to surge by 15 per cent to $667 billion this year. Adding in bi- and multilateral debt, the total stock will reach $814 billion, a year-on-year increase of $116 billion, or 17 per cent.
The share of non-commercial official debt (bi- and multilateral) in total sovereign debt is set to rise to 22 per cent of total debt as of year-end 2016, from 20 per cent in 2015.
The total outstanding short-term commercial debt is expected to reach $163 billion at year-end 2016.