With the funding needs in the Gulf Cooperation Council (GCC) increasing significantly in 2020, the total GCC government debt is expected to increase by a record-high of about $100bn in this year alone, with an additional $80bn run-down in government assets to finance an aggregate GCC central government deficit of about$180bn.
The S&P Global Ratings said yesterday low oil prices and the economic repercussions of the COVID-19 pandemic have significantly widened governments’ fiscal deficits.
“Based on our macroeconomic assumptions, we expect to see GCC government balance sheets continue to deteriorate up until 2023,” said S&P Global Ratings credit analyst Trevor Cullinan.
“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”, he said.
S&P Global estimates that GCC sovereigns’ central government deficits will reach about $490bn cumulatively between 2020 and 2023. A large part of the surge in GCC government funding needs relates to central government deficits in 2020, with the simple average reaching 18 percent of GDP compared with 5 percent in 2019.
In the wake of the sharp decline in oil prices from second-half 2014, the 2016 combined deficit was at similar levels--$190bn, or 16 percent of combined GDP. In its forecast, S&P Global assumes an average Brent oil price of $30 per barrel (/bbl) for the rest of 2020,$50/bbl in 2021, and $55/bbl from 2022, relative to $64/bbl in 2019. However, as deficits still remain quite sizeable in some cases, GCC government balance sheets will continue to deteriorate up until 2023.
As a percentage of GDP, Qatar has the lowest 2020 government deficit-to-GDP ratio of 10 percent. 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 $90bn in 2016 and 2017, and S&P expects a new record high of about $100bn in 2020.
And then expect total annual debt issuance to trend down toward $70bn by 2023. GCC governments have, for the most part, borrowed rather than liquidated their assets to fund their deficits. S&P includes in its projections a funding mix of asset drawdowns and debt issuance. It expects that debt issuance will meet about 60 percent of the $490bn financing requirement in 2020-2023.
“We base this assumption on the financing trends of the past few years, governments’ explicitly stated policy decisions, and our view of the availability of assets”, the rating agency said.
Thanks to their hydrocarbon wealth, some GCC governments have accumulated large pools of financial assets, which they can use to fund their fiscal deficit. For instance, Government assets in some GCC countries like Qatar exceed government debt
