Funding needs of Gulf nations pegged at $151b

Muscat: Gulf countries will need $151.3 billion to meet expenditure in 2016, said a financial expert. Of this, $78.1 billion is expected to come from reserves (52 per cent), $57.7 billion from domestic and international bond issuances (38 per cent) and the rest through loans (10 per cent).
Overall, Gulf Cooperation Council (GCC) governments are expected to raise between $285-390 billion cumulatively through 2020 through local and international bonds, said M. R. Reghu, head of research at Markaz and managing director of Marmore Mena Intelligence. He was making a presentation at a seminar on forecasting sovereign debt issuance in GCC.
Raghu said that the low oil prices has altered the fiscal landscape of GCC countries as the prized fiscal surplus registered in erstwhile years has flipped into large scale deficits to the tune of $160 billion in 2015 and 2016, respectively.
He pointed out that in 2015, the deficit was partly met by domestic bond issuances and the remaining by liquidating reserves held in sovereign wealth funds (SWFs). Saudi Arabia for the first time in 8 years issued local debt to raise approximately $26 billion from domestic banks and utilised almost $100 billion of its reserves.
Fall in deposits
Raghu outlined that the impact of lower oil revenues has visibly impacted the Kuwaiti banks’ deposit mobilisation process, as government deposits account for sizeable portion. Fall in deposits growth coupled with governments drawing down on their savings and placement of domestic bonds by the governments with the local banks has usurped liquidity in the regional financial system causing interbank rates to rise. Though, the banks are well capitalised, they may not be able to act as the sole source of funding avenue for the governments. Rising debt levels for the GCC governments and uncertain outlook regarding oil prices, which determines the debt servicing capabilities, has led to higher cost of insurance for insuring government debt as evidenced by the widening spreads for credit default swaps (CDS).
While UAE, Kuwait Saudi Arabia and Qatar boast of robust fiscal reserves, Bahrain and Oman have minimal reserves by comparision.The sovereign ratings of Bahrain, Oman and Saudi Arabia have been downgraded in the recent weeks. Further, lack of clarity regarding debt management policies of few GCC countries has caused wide spread speculation regarding the way the deficit could be financed. This uncertainity has resulted in fixed income investors demanding wider spreads for outstanding issues in GCC region.
While Qatar and Oman have clearly provided indications regarding their approach to plug the deficit, Saudi Arabia and Bahrain budgetary documents fall short of such discussion.
Apart from forecasting debt issuance through budgetary estimates, debt issuance till 2020 is estimated through IMF projections of fiscal deficit.