GCC debt issuances set to fall on higher oil prices

The aggregate fiscal positions of the GCC sovereigns, excluding Kuwait, will improve to a surplus of $50 billion in 2022

Higher oil prices, lower pandemic-related expenditure, and buoyant economic activity are poised to narrow the budget deficits of GCC oil producers, prompting most sovereigns to reduce their debt issuances going forward.

The downturn in bond issuances is forecast globally. Long-term sovereign Sukuk issuance across the world is set to drop to $73 billion in 2022 and $75 billion in 2023, from $88 billion in 2021, including issuance by multilateral development banks, Moody's Investors Service said in a report.

The rating agency estimates that the aggregate fiscal deficit of major Sukuk-issuing sovereigns, including Saudi Arabia, Malaysia, Indonesia, and Turkey, will decline to $92 billion in 2022 from $118 billion in 2021 and $194 billion in 2020. The aggregate fiscal positions of the GCC sovereigns, excluding Kuwait, will improve to a surplus of $50 billion in 2022 from a surplus of $13 billion in 2021 and a deficit of $112 billion in 2020. These projections are based on the 2022 average oil price assumption of $75/barrel.

In 2021, the budget deficits of the six-nation GCC bloc were projected to fall sharply to about $80 billion from $143 billion in 2020 on higher oil revenues. In terms of GDP, this would mean a fall to 5.0 per cent of GDP from the 10 per cent earlier, S&P Global Ratings said.

Kuwait-based Kamco Invest projects a small decline in total fixed income issuances (bonds and Sukuk) in the GCC in 2022.

Analysts said government issuances are expected to decline due to elevated oil prices and lower financing needs for social spending, whereas higher expected interest rates could also impact the growth in corporate issuances during the year.

Kamco noted that after recording growth in issuances for two consecutive years, GCC bonds and Sukuk issuances declined during 2021. As expected, the decline was led by lower government issuances for two years in a row, whereas corporate issuances witnessed an increase for the sixth consecutive year, the report maintained.

Crude oil prices that averaged at a three-year high level of $70.9 per barrel were one of the key reasons for the decline in government issuances during 2021.

Issuance volumes fell 22 per cent globally in 2021, with the largest decline from the GCC sovereigns, mainly Saudi Arabia. Total issuances in the GCC dropped to $146.7 billion in 2021 from $151.1 billion in 2020.

The trend will continue in 2022, as major Sukuk-issuing sovereigns will see their deficits continue to shrink amid higher oil prices and increased economic activity.

"We expect issuance to fall as government deficits continue to narrow because of higher oil prices, lower coronavirus-related expenditure and accelerating economic activity in core Sukuk-issuing countries," said Alexander Perjessy, vice president and senior analyst at Moody's.

issacjohn@khaleejtimes.com