Saudi debt to rise to 9% of GDP in 2016, says S&P

Standard & Poor’s expects Saudi Arabia’s total debt to rise to 9 per cent of GDP in 2016 and to about 30 per cent by 2019.

“We expect Saudi Arabia to account for nearly 70 per cent of the GCC countries’ total borrowing in 2016 and to become the second-largest issuer of commercial debt in the Mena region,” S&P said in a new report.

The ratings agency said overall it projects the 13 Middle East and Northern African (MENA) sovereigns it rates to borrow around $134 billion from long-term commercial sources in 2016.

This compares with borrowing of $143 billion in 2015, which was more than double the $68 billion predicted, the ratings agency said in a new report.

“The $9 billion, or 6 percent, decline in commercial borrowing in 2016, is largely due to our expectation of a modest fiscal consolidation in Egypt,” the agency said.

Sharp decline in oil prices, fiscal consolidation efforts and upcoming refinancing needs are expected to keep commercial debt issuance by Middle East and North Africa (Mena) governments, including GCC sovereigns, elevated in 2016, according to the report.

"The financing needs of some GCC governments are apparent, but it remains unclear in some cases exactly how the deficits will be financed, in terms of the mix between asset drawdowns and debt issuance," said S&P credit analyst, Trevor Cullinan.

According to S&P’s estimates, Saudi Arabia borrowed $26 billion in 2015. The kingdom’s fiscal deficit which hit 14 per cent of the GDP in 2015 brought about a significant policy change.

The government was close to paying down all of its debt in 2015. From July of that year, however, the government began a program of debt issuance, with SAR 20 billion issued each month between August and December.

Outside the GCC, Egypt and Iraq are expected to be biggest commercial debt issuers in 2016. While Iraq issued $30 billion debt last year, Egypt issued $43.36 billion. In the current year both these countries are projected to issue $29.22 billion and $34.07 billion debt, respectively.