Fitch: Saudi Arabia is strengthening debt markets through successive issuances to fill the budget deficit

Fitch Ratings said that Saudi Arabia aims to strengthen its debt markets through issuances driven by the budget deficit estimated at 3% and 3.4% of GDP in 2024 and 2025, respectively.

According to the Arab World News Agency (AWP), Fitch reported that most Gulf Cooperation Council countries have come a long way in developing their debt markets, expecting debt issuances to continue to rise during the current and next years, but at a slower pace than in the first quarter.

Fitch reported that the Gulf Cooperation Council countries accounted for 32.3% of total emerging market debt issuances in dollars, excluding China, during the first quarter of 2024.

She added that global investor demand for these debts is supported by the inclusion of Gulf countries in global bond indices such as those issued by JP Morgan, FTSE and Bloomberg.

The report said that the volume of outstanding debt issuances in the Gulf approached one trillion dollars, including about 40% in the form of sukuk, and that government issuances of debt will be driven by an expected decline in the price of oil to $80 per barrel in 2024 and $70 in 2025, according to Fitch’s expectations, as well as oil prices. interest, market development initiatives, and seeking to further diversify financing channels.

She added that the size of the Gulf debt markets grew by 7% on an annual basis to about $940 billion in the first quarter, with Saudi Arabia holding the largest share at 43%, followed by the UAE at 30%, Qatar at 13%, Bahrain at 5.2%, then the Sultanate of Oman at 4.9% and Kuwait. By 3.8%.

She added that approximately 60% of debt issues in the Gulf are in dollars, 21% of them are in Saudi riyals, and 7% are in UAE dirhams, and more than 60% of them are sovereign issues.

It indicated that dollar issuances were strong in the first quarter of 2024 at $48.1 billion, and that debts of about $209 billion will mature in 2024 and 2025 across all currencies.

Regarding the drivers of debt issuance in the Gulf countries, the credit rating agency said that while the UAE is expected to achieve financial surpluses, its debt issuers are seeking to diversify financing. On the other hand, Bahrain is counting on debt market methods and obtaining financing from the rest of the countries of the region in light of its registration. Huge deficit.

But Fitch said that debt markets in Qatar and Oman are contracting, as the governments of both countries are expected to repay more debt in 2024. In Kuwait, the absence of a debt law limits financing options.

The report pointed out that the share of the Gulf Cooperation Council countries reached 35% of the total outstanding global sukuk issuances, indicating that government debt issuances in local currency in all of Saudi Arabia and the Emirates are limited to sukuks and do not include bonds.

She said that the sukuk constituted 37% of the total debt instruments outstanding in the Gulf debt markets at the end of the first quarter, while the rest were in the form of bonds.

According to the report, sukuk issuances in dollars jumped last year by 212% on an annual basis, exceeding the bond growth rate of 68% on an annual basis, to constitute 41% of the size of debt markets in the Gulf.

Fitch said that Gulf banks are among the main investors in debt markets and are likely to seek to diversify their financing through channels such as debt markets, adding that dollar debt issuances by Gulf banks in the first quarter of 2024 exceeded issuances for the entire year of 2023.

She said that companies’ efforts to reduce their dependence on banks and governments’ efforts to develop debt markets could constitute motivating factors for companies to issue debt.