A construction site in Saudi Arabia.Saudi Arabia’s total long term commercial borrowing is forecast to exceed $50 billion in 2020. Image Credit: Gulf News Archive

Dubai: Saudi Arabia is forecast to lead the Middle East and North Africa (Mena) region in sovereign borrowings in 2020, according to rating agency Standard & Poor’s.

Saudi Arabia’s total long term commercial borrowing is forecast to exceed $50 billion in 2020.

“We think Saudi Arabia’s estimated increase in borrowing will come from efforts to cover most of its relatively wide fiscal deficit by issuing debt rather than by drawing on assets. As was the case in previous years, the next largest borrowers will likely be Egypt with $46 billion and Lebanon with $13 billion,” said Karen Vartapetov, an analyst at S&P said in a note.

With increasing issuance plans in 2020, Saudi Arabia, Mena’s largest economy, will also become the seventh largest issuer in Europe, Middle East and Africa (EMEA) region and among the top 20 sovereign issuers globally.

Moderation in debts

For the current year, the overall commercial borrowings by the Mena governments are likely to moderate compared to last year.

“For the 13 sovereigns we rate in Mena, we forecast a 6 per cent ($9.2 billion) increase in long-term borrowing from commercial sources this year after a strong increase of 26 per cent in 2019. The high borrowing last year was mainly due to the low base effect in 2018, when sovereign funding needs were lower thanks to high oil prices and fiscal consolidation efforts in the GCC,” said Vartapetov.

Similar to 2019, the rating agency expects, in addition to Saudi Arabia, Egypt, and Lebanon to be the largest issuers of commercial debt in 2020, with combined issuance representing about 70 per cent of the region’s total.

Iraq is expected to face the biggest increase of gross commercial long-term borrowing in 2020 compared with 2019, with projected commercial issuance (mostly domestic) of $12 billion amid a looser fiscal stance partly stemming from the completion of IMF programmes alongside higher spending needs.

Refinancing needs

S&P expects that about 51 per cent of Mena sovereigns’ $163 billion of gross borrowing this year will go toward refinancing maturing long-term debt, resulting in an estimated net borrowing requirement of $80 billion.

Egypt will face the highest debt rollover ratio (including short-term debt) in the region, reaching 33 per cent of GDP, followed by Bahrain (25 per cent) and Lebanon (22 per cent).

Most GCC countries are expected continue to diversify their funding and liquidity needs through international debt issuance.

Total commercial debt will reach about $941 billion, a year-on-year increase of $68 billion, or 8 per cent, with Egypt, Saudi Arabia, and Qatar accounting for the majority of long-term commercial debt stock (with 28 per cent, 22 per cent and 10 per cent of the total share respectively).