Dubai: Lower oil prices, upcoming debt maturities requiring refinancing are expected to push up the commercial borrowings of GCC countries and wider Middle East and North Africa (Mena), according to rating agency Standard & Poor’s.
Sovereign long-term commercial borrowing in the Mena region could increase by 25 per cent this year after falling 38 per cent in 2018. S&P projects the total borrowings for the region to rise to $136 billion this year from $109 billion in 2018.
“This [decline in borrowings last year] was chiefly because higher oil prices and fiscal consolidation measures in GCC countries significantly reduced GCC sovereigns’ funding needs in 2018. However, lower oil prices in 2019 will not support a further reduction in GCC fiscal deficits,” said Trevor Cullinan, a credit analyst with S&P.
A significant portion of Mena region’s government debt this year is expected to go towards debt refinancing. “We expect that about 44 per cent of MENA sovereigns’ $136 billion of gross borrowing this year will go toward refinancing maturing long-term debt, resulting in an estimated net borrowing requirement of $76 billion,” said Cullinan.
Total sovereign debt of the region, including borrowings from bilateral and multilateral institutions, is expected to rise by $85 billion (11 per cent) in 2019 to $892 billion.
Most GCC countries have been tapping international debt markets in recent years to meet their funding needs, diversify funding sources, and reduce liquidity pressures in the domestic banking systems. Regarding GCC central governments’ deficit-financing strategies, Qatar, Bahrain, and Oman have largely focused on debt issuance rather than asset drawdowns. Saudi Arabia has seen a more equal split between issuing debt and liquidating part of their assets, while Abu Dhabi and Kuwait have mostly drawn down assets, issuing in the markets more opportunistically.
S&P expects Saudi Arabia, Egypt, and Lebanon will issue the lion’s share of long-term commercial government debt in the region in 2019 representing 22 per cent, 20 per cent, and 14 per cent, respectively. Iraq will continue to have the largest share of bi- and multilateral debt in 2018 accounting for 40 per cent of the total debt.
“We expect Saudi Arabia, the largest Mena economy that we rate, to be the largest borrower in 2019 with $29 billion, or 22 per cent of gross commercial long-term borrowing in the region as a whole. The next largest borrower will be Egypt ($28 billion; 20 per cent of the total,” said Cullinan.
Egypt is expected to face the highest debt rollover ratio (including short-term debt) in the region, reaching 36 per cent of GDP, followed by Jordan (30 per cent) and Lebanon (27 per cent). The rollover ratios of sovereigns with higher proportions of official debt tend to be lower because official debt typically has longer tenors than commercial debt.
For 2019, S&P projects that sovereigns’ commercial debt rated in the ‘AA’ category (Abu Dhabi, Kuwait, and Qatar) will be 18 per cent of the total, significantly up from 8 per cent in 2018. This is based on their expectation that the Kuwaiti government will pass a new debt law, raising the debt ceiling and authorising extra borrowing.
Due to the rise in the share of debt issuance by higher-rated Mena sovereigns to 39 per cent in 2019 from 35 per cent in 2018, the share of commercial debt rated in the ‘BBB’ category or lower is projected to fall to about 61 per cent of the total from 65 per cent in 2018.