Mena sovereign borrowing set to decline 20% in 2017

Dubai - $28b to be used to refinance maturing long-term debt

Middle East and Northern Africa sovereign borrowing will slow down in 2017, after increasing sharply in 2016, signifying the impact of the oil price rebound.
"We project that the 13 Mena sovereigns we rate will borrow an equivalent of $136 billion from long-term commercial sources in 2017. This represents a 20 per cent decline of $34 billion in long-term commercial debt issuance," S&P Global Ratings credit analyst Trevor Cullinan said.
In 2017, $28 billion (about 20 per cent) of Mena sovereigns' gross borrowing will be used to refinance maturing long-term debt, compared with $24 billion in 2016, resulting in an estimated net borrowing requirement of $108 billion, said a report by S&P Global Ratings.
"As a consequence, we project that Mena sovereigns' commercial debt stock will reach $720 billion by end-2017, a 19 per cent increase from 2016. Adding bi- and multilateral debt, the total stock will reach $821 billion, a year-on-year increase of $135 billion, or 20 per cent," said the report.
The share of noncommercial official debt (bi- and multilateral) in total sovereign debt is set to rise to 14 per cent of total debt as of year-end 2017, from 13 per cent in 2016.
"We expect that outstanding short-term commercial debt [debt with an original maturity of less than one year] will reach $106 billion at year-end 2017," S&P analysts said.
"Fiscal consolidation measures have been implemented by all GCC governments. In conjunction with the modest recovery in oil prices since the fourth quarter of 2016, we expect net oil exporters' government financing needs to reduce compared with last year," S&P Global Ratings aid.
Saudi Arabia, the largest Mena economy, remains the largest borrower with $36.6 billion, or 27 per cent of gross commercial long-term borrowing in the region as a whole, albeit on a declining trend (-36 per cent).
The remaining lion's share will be issued by Lebanon ($19 billion; 14 per cent of the total) and Egypt ($14.8 billion; 11 per cent of the total).
In recent years, GCC sovereigns have implemented fiscal consolidation measures to cut government spending and increase non-oil government revenues. "We expect regional fiscal deficits to moderate as a result, while the modest recovery in oil price of late should boost government revenues. We expect GCC sovereign gross commercial long-term borrowing of $75 billion in 2017, down from $105 billion in 2016 - which was a sharp increase from 2015 [$43 billion]," analysts said.
The report noted that some clarity has emerged regarding GCC governments' deficit financing strategies, with Qatar, Bahrain and Oman largely focused on debt issuance rather than asset drawdowns, while Abu Dhabi, Kuwait and Saudi Arabia are likely to have more of a split between issuing debt and liquidating part of their assets to fund their central government deficits.
However, analysts at Kamco expect that debt issuance from the GCC would surge in 2017 with sovereign issuers leading while conventional bonds outstripping sukuk both in terms of amounts raised and number of issues.
"Prospects for region's bond issuances in 2017 appear bright based on further funding requirement in the region by sovereigns and corporates as well as rising interest rates that would make bank lending costlier. Moreover, as the economic growth is estimated to pick up, spending by corporates on M&A and capital projects is expected to also grow that would have a direct impact on fixed income issuances," Junaid Ansari, assistant vice-president at Kamco.
- issacjohn@khaleejtimes.com