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Qatar has the lowest “2020 central government deficit-to-GDP ratio” in the GCC at 10%, S&P Global said and noted fiscal deficits will shrink in the region from 2021, assuming oil prices improve and oil production cuts taper in line with the ‘April 2020 |OPEC+’ agreement.
As a percentage of GDP, Kuwait has the highest “2020 central government deficit-to-GDP ratio” of 39% although another country’s deficit makes up the majority of the GCC fiscal deficit in nominal terms.
In its forecasts, S&P assumes an average Brent oil price of $30 per barrel for the rest of 2020, $50 in 2021, and $55 from 2022, relative to $64 in 2019.
It estimates that GCC sovereigns’ central government deficits will reach about $490bn cumulatively between 2020 and 2023.
Government funding needs in the Gulf Cooperation Council have increased significantly in 2020, as low oil prices and the economic repercussions of the Covid-19 pandemic have significantly widened governments’ fiscal
deficits.
“We expect total GCC government debt to increase by a record-high of about $100bn in 2020 alone, with an additional $80bn run-down in government assets to finance an aggregate GCC central government deficit of about $180bn. Based on our macroeconomic assumptions, we expect to see GCC government balance sheets continue to deteriorate up until 2023. 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,” S&P said.
Since the sharp fall in oil prices, many GCC sovereigns have posted sizeable 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. S&P expects a new record high of about $100bn in 2020.
It then expects total annual debt issuance to trend down towards $70bn by 2023, largely driven by its expectation of a narrowing of a GCC country’s fiscal deficits over the period.
GCC governments have, for the most part, borrowed rather than liquidated their assets to fund their deficits.
In its projections S&P has included a funding mix of asset drawdowns and debt issuance.
“We expect that debt issuance will meet about 60% 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,” S&P noted.
In first-quarter 2020, due to the spread of Covid-19, emerging markets experienced significant capital outflows and there was limited activity on international capital markets.
In the second quarter, however, GCC sovereigns contributed significantly to the resurgence in emerging market sovereign issuance, with about $35bn in Eurobonds.
Thanks to their hydrocarbon wealth, some GCC governments have accumulated large pools of financial assets, which they can use to fund their fiscal deficits. Government assets in Qatar and three other GCC countries exceed government debt, in some cases by a wide margin, S&P said.
