S&P warns on GCC sovereigns' cumulative funding requirements

Gulf Cooperation Council (GCC) sovereigns' cumulative funding requirement could total up to $560bn between 2015 and 2019, creating uncertainty about coverage of their fiscal deficits, warns S&P Global Ratings.

"The resulting imbalances and their likely impact have been central to our view of a significant deterioration in the region's creditworthiness over the past 18 months," the ratings agency said.

It added that although most governments' balance sheets remained at rating strength, the related assets were finite.

"Furthermore, international liquidity sources could start to dry up at a time when foreign inflows are most needed and the liquidity of domestic banking systems is diminishing.

"This creates uncertainty about how, and at what price, GCC sovereigns will cover their fiscal deficits."

S&P Ratings said that as a proportion of gross domestic product (GDP), it expected that in the period 2016-2019 these deficits would average around 10% a year in Bahrain, Oman, Kuwait, and Saudi Arabia, and 4% on average in Abu Dhabi and Qatar.

"In our view, GCC sovereigns' financing needs will likely remain substantial over the next several years, given the region's almost uniform dependence on hydrocarbons."

S&P Ratings opined that the consequences of the sharp fall in oil prices were clearly visible in GCC sovereigns' fiscal and external accounts.

"The region's funding requirement has been mounting since 2015, when the drop in oil-related revenue turned fiscal surpluses into deficits, although these differ among the sovereigns in scale and duration," the ratings outfit said.

"We estimate that, in nominal terms, GCC sovereigns' combined fiscal deficit will reach $150bn (12.8% of combined GDP) in 2016 alone."