GCC government-related Debt set to continue rising in 2021

Government-related-entity (GRE) debt will continue to rise in the Gulf Cooperation Council (GCC) economies as governments use GREs to drive economic development and support budgetary priorities amid weak oil revenues, Fitch Ratings says. The economic contraction in 2020 will further exacerbate leverage ratios and magnify the risks of GRE liabilities crystallising on government balance sheets.

We estimate that aggregate GCC non-bank GRE debt hit 30% of GDP in 2019 (an increase of 3pp over 2018, excluding the effect of reclassifying airlines' financial lease liabilities). Debt ranged from 14% of GDP in Kuwait to 45% of GDP in the UAE.

Aggregate debt of GCC government-related banks (wholesale or interbank funding, excluding customer deposits) rose to 17% of GDP in 2019 and ranged from 14% of GDP in Bahrain to 46% of GDP in Qatar in 2019. The upper limit of potential contingent liabilities from banks is even larger, with sector assets ranging from 89% of GDP in Saudi Arabia to 244% of GDP in Qatar.

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.

We assess 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.


Source: fitchratings.com