Mena states to boost long-term borrowing by 25% to $136bn in 2019, S&P says

Saudi Arabia to lead regional market with 22 per cent of the total

If Kuwait's debt law is enacted, the country is then expected to issue $15bn of long-term commercial debt, compared with zero borrowing in 2018. EPA

Thirteen Middle East and North Africa countries are forecast to ramp up their borrowing by 25 per cent to $136 billion (Dh499.5bn) in 2019 as governments continue to finance fiscal deficits and roll over debt, S&P Global Ratings said in a report.

Saudi Arabia, the largest Arab economy, will lead the region with $29bn or 22 per cent of total commercial long-term borrowing this year, followed by Egypt with $28bn or 20 per cent of the total, and Lebanon with 14 per cent, the rating agency said.

“Most Gulf countries have been tapping international debt markets in recent years to meet their funding needs, diversify funding sources and reduce liquidity pressures in the domestic banking systems,” the report said. “We expect that about 44 per cent of Mena sovereigns' $136bn of gross borrowing this year will go toward refinancing maturing long-term debt, resulting in an estimated net borrowing requirement of $76bn.”

The increase in debt issuance coincides with the US Federal Reserve Bank changing course at the start of this year regarding additional interest rate hikes. The decision to cut back on anticipated four rate hikes this year, means borrowing costs will remain low.

The crash in oil prices from 2014 prompted several governments in the Arabian Gulf to resort to borrowing to finance fiscal deficits as oil income shrank. Many governments have managed to narrow their fiscal deficits, but the drop in oil prices at the end of last year will boost their financing needs again.

“Regarding GCC central governments’ deficit-financing strategies, Qatar, Bahrain and Oman have largely focused on debt issuance rather than asset drawdowns,” said S&P. “Saudi Arabia has seen a more equal split between issuing debt and liquidating part of their assets, while Abu Dhabi and Kuwait have mostly drawn down assets, issuing in the markets more opportunistically.”

S&P is projecting AA-rated sovereigns such as Abu Dhabi, Kuwait and Qatar, to issue 18 per cent of the total in 2019, up from a share of 8 per cent in 2018. That partially is due to expectations that Kuwait will pass a new debt law that will raise its debt ceiling.

If the law is enacted, then Kuwait is forecast to issue $15bn in long-term commercial debt, compared with zero borrowing in 2018.