GCC government deficits could exceed $180b in 2020

Dubai: Government funding deficit across the GCC is expected to exceed $180 billion in 2020 due to low oil prices and the economic repercussions of the COVID-19, according to a recent note by Standard & Poor’s.

The rating agency expect the surge in deficits to increase demand for debt issuance across the region. “We expect total GCC government debt to increase by a record-high of about $100 billion in 2020 alone, with an additional $80 billion run-down in government assets to finance an aggregate GCC central government deficit of about$180 billion,” S&P said in report.

Analysts at S&P anticipates GCC government balance sheets continue to deteriorate up until 2023. Most GCC sovereigns have demonstrated ready access to the international capital markets this year, and are in the enviable position of having substantial pools of external liquid assets to fund their fiscal deficits should market access become constrained.

Surging debt

S&P’s projections show that GCC sovereigns’ central government deficits will reach about $490 billion cumulatively between 2020 and 2023. About 55 per cent of this deficit relates to Saudi Arabia, the GCC’s largest economy, followed by Kuwait with 17 per cent and Abu Dhabi with 11 per cent.

The projections on debt is based on central government balance and estimates of government debt refinancing and income related to the sovereign wealth fund, as including this would obscure the picture of governments’ funding needs.

GCC’s aggregate average government debt is projected to reach 18 per cent of GDP this year compared with 5 per cent in 2019.

“We expect fiscal deficits will shrink from 2021 given our assumption that oil prices will improve and the tapering of oil production cuts in line with the April 2020 OPEC Plus agreement,” S&P said in a report.

Saudi to lead borrowings

Saudi Arabia’s deficit makes up the majority of the GCC fiscal deficit in nominal terms. As a percentage of GDP, however, Kuwait has the highest 2020 central government deficit-to-GDP ratio of 39 per cent , followed by Oman (17 per cent), Saudi Arabia (15 per cent), Abu Dhabi (13 per cent), Bahrain (12 per cent) and Qatar (10 per cent).

Since the sharp fall in oil prices, many GCC sovereigns have posted sizable central government deficits. These increased funding needs prompted total GCC government debt issuance in local and foreign currency of over $90 billion in 2016 and 2017. “We expect a new record high of about $100 billion in 2020. We then expect total annual debt issuance to trend down toward $70 billion by 2023, largely driven by our expectation of a narrowing of Saudi Arabia’s fiscal deficits over the period,” S&P said.