So far this year hard currency bond issuance by Saudi Arabia, the UAE, Qatar, Bahrain, and Oman has amounted to $91 billion, as compared with $99 billion for the whole year of 2019. While spreads have narrowed in recent months, they are still wider than pre-Covid levels.
“We project gross public external financing needs of the region at about $100 billion in 2021, driven largely by the six GCC countries. Strong demand for high-quality assets from the region will remain at least for the next few years given the large financial buffers in the form of official reserves and SWFs (particularly in the UAE, Qatar, Kuwait, and Saudi Arabia) and the resumption of fiscal adjustment,” said Garbis Iradian, chief economist for Mena at the Institute of International Finance.
“The modest decline in external financing needs due to narrower fiscal deficits in 2021 would be largely offset by higher external amortization, which is expected to increase from $23 billion in 2020 to $49 billion in 2021,” he said.
Despite narrowing of the deficits in 2021, IIF noted that external financing will remain elevated.
“With oil prices expected to remain below $50 a barrel for the foreseeable future, GCC authorities are implementing serious fiscal adjustment measures to put their finances on a more sustainable footing. Even so, fiscal and current account deficits are likely to decline only gradually, and the GCC countries may continue to rely on substantial foreign borrowing in the years ahead,” he added.
Overall borrowing costs, as measured by the effective interest rate on debt, are declining due mainly to the large monetary easing in advanced economies and the increased provision of official funding to several countries in the region, he added.