'Upward trend in GCC GRE debt likely over the medium term'
HONG KONG
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Partial recovery from the Covid-19 pandemic and higher oil prices are lowering government-related entity (GRE) debt as a share of GDP across the GCC in 2021, but in most countries, GRE debt levels remain higher than before the pandemic, Fitch Ratings says.
The upward trend in GRE debt/GDP that has been in evidence since 2014 could resume as GREs help to drive national economic agendas, aiming at job creation, diversification and the energy transition.
Increased focus on privatisation and asset sales could mitigate this trend over time.
Aggregate GCC non-bank GRE debt hit 37 per cent of GDP in 2020 (an increase of 7pp over 2019), driven in part by declines in nominal GDP on lower oil prices and Covid-19-induced recessions. The ratio is 32% in relation to forecast 2021 GDP.
Aggregate debt of GCC government-related banks (wholesale or interbank funding, excluding customer deposits) rose to 24% of GDP in 2020. However, potential contingent liabilities from banks are larger, with sector assets reaching above 300% in Qatar, for example.
All GCC states have a record of supporting their GREs, either on an ongoing basis or in periods of distress. The likelihood of future assistance is high given past experience, combined with the continuing importance of GREs to national economic growth strategies and, frequently, their status as national champions.
Fitch Ratings assesses that GRE indebtedness has the highest potential to affect sovereign ratings in Qatar and Oman, considering the scale of potential exposure against the strength of their balance sheets.-TradeArabia News Service
