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March 15, 2016 | 15:45 | Dubai
GCC governments are expected to raise between $285-390 billion cumulatively through 2020 through local and international bonds and the new debt issuances by the GCC government could usher in a new era for GCC fixed income markets, according to a presentation by Kuwait Financial Centre “Markaz” on “Forecasting Sovereign Debt Issuances in GCC” in collaboration with Kuwait Banking Association. The challenging environment posed by lower oil prices should be converted into an opportunity to develop the domestic debt markets. In this regard, establishment of debt management office and regulatory framework to clearly communicate to the markets is necessary. Though domestic debt issuance allows for easier and faster way to raise capital at lower credit spreads, it could usurp liquidity and ‘crowd out’ borrowing space for private borrowers, the presentation delivered by M.R. Raghu, Head of Research at Markaz and Managing Director of Marmore MENA Intelligence, a research subsidiary of Markaz, said.
On an overall basis for 2016, Raghu stated that the financing need for GCC countries to be at $151.3 billion of which $78.1 billion is expected to come from reserves (52%), $57.7bn from domestic and international bond issuances (38%) and the rest through loans (10%). Raghu said that the low oil prices has altered the fiscal landscape of GCC countries as the prized fiscal surplus registered in erstwhile years has flipped into large scale deficits to the tune of $160 billion in 2015 and 2016 respectively. In 2015, the deficit was partly met by domestic bond issuances and the remaining by liquidating reserves held in Sovereign Wealth Funds (SWFs). Saudi Arabia for the first time in 8 years issued local debt to raise approx. $26 billion from domestic banks and utilized almost $100 billion of its reserves.