Gulf economies to borrow at record levels this year to cope with pandemic

By 2020, the five members of the Gulf Cooperation Council will have to face up to the largest debt burden in their history in order to deal with the crisis caused by the pandemic. The collapse of oil prices is putting the finances of these countries to the test. They are expected to need up to $490 billion over the next three years to cover their budget deficits, according to a report by S&P Global Ratings compiled by Bloomberg. The deficit for the region as a whole will soar to 18% this year. In 2019 it barely reached 5%. They are expected to start reducing this figure from 2021. 

Bahrain, Oman, Qatar and Saudi Arabia will pull debt from the markets, while Dubai, Abu Dhabi and Kuwait will draw on their assets to finance the deficit, the S&P paper says. Government assets in Kuwait, Abu Dhabi, Qatar and Saudi Arabia exceed government debt by a relatively wide margin; in the case of Bahrain and Oman, their debt exceeds their assets. Analysts at S&P Global Rating believe the impact of the pandemic on the budgets of these nations could be felt until 2023, according to an analysis coordinated by the director of sovereign debt of the consulting firm Trevor Cullinan and published on Monday. 

The acquired debt will be used to finance around 60% of the central government's fiscal deficits in 2020-2023. S&P predicts that Kuwait, Qatar, Bahrain, Oman, Saudi Arabia and the United Arab Emirates will borrow about $100 billion and use another $80 billion in government assets to cover this year's financing needs. Annual debt issuance will reach $70 billion by 2023 if Saudi Arabia reduces its fiscal deficit during the period. Most of these countries' deficits will reach double digits by 2020, something unprecedented in this corner of the world. 

Despite the grandiloquence of the figures, these states have sufficient resources to deal with the debts. "Most GCC members have demonstrated easy access to international capital markets this year and are in an enviable financial position by having liquidity to finance their fiscal deficits in case their market access is limited," the S&P says in its study. 

Following the fall in oil prices in 2014, Gulf governments began to borrow to meet all their commitments. During this time, they have tried to limit their expenditures and diversify their economy to clean up their budgets. Oman, one of the countries with the largest deficit in 2020, will borrow in the second half of the year as global economic conditions improve and oil prices recover. In the absence of debt issuance, the Omani government will start liquidating financial assets worth 55% of GDP in 2019, according to figures handled by S&P. The rating agency forecasts an average Brent oil price of $30 per barrel for the rest of 2020, $50 in 2021 and $55 from 2022.