Gulf countries put an end to debt policies

Gulf countries have launched a series of measures to reduce public spending. After quadrupling their debt figures over the last eight years as a result of the 2014 oil price collapse, a phenomenon caused by oversupply and fierce competition between producers, the Arab monarchies have decided to put an end to this period. 

The regional economy began to recover thanks to the reforms undertaken at the time, but the COVID-19 pandemic brought with it a new collapse of the energy market. These needs pushed governments to raise the spending ceiling again, with consequences that they have only now begun to recover from.

The Russian invasion of Ukraine sent shockwaves through energy markets. The displacement of Russia as a preferred supplier of oil and gas sent prices soaring, benefiting the Gulf producing countries. The huge marginal gains have emboldened individual Arab monarchies to cut subsidies or freeze public sector employment, among other measures to reduce spending. 

Even before the war, countries such as Bahrain and Saudi Arabia had deployed economic plans aimed at cutting public investment in order to maintain some budgetary balance. Indeed, the Saudi government's accounts for this year closed the way for borrowing and projected a surplus. However, a large part of the Gulf countries have recorded budget deficits in this period, which were financed by withdrawing reserves, bank loans and bond issuance. Regional debt rose to $617 billion, according to the International Monetary Fund (IMF).

Oman, for example, dropped eight places in the credit rankings as a result of high indebtedness, and is unattractive for international investment. The Sultanate's public debt rose from 5 per cent to over 70 per cent. In response, Muscat issued debt bonds in order to finance its investments, a move that, together with other economic reforms, helped it to recover its credit rating. 

Gulf countries' debt continues to attract strong global investment demand. The market generally values Gulf bonds above the levels set by the various rating agencies.