On an overall basis for 2016, the financing need for GCC countries is forecast to be at $151.3 billion of which $78.1 billion is expected to come from reserves (52 percent), $57.7 billion from domestic & international bond issuances (38 percent) and the rest through loans (10 percent), said M R Raghu, Head of Research at Markaz and Managing Director of Marmore MENA Intelligence, a research subsidiary of Markaz, in a presentation on "Forecasting Sovereign Debt Issuances in GCC" in collaboration with Kuwait Banking Association (KBA). Overall, GCC governments are expected to raise between $385-390 billion cumulatively through 2020 through local and international bonds. Raghu said the low oil prices has altered the fiscal landscape of GCC countries as the prized fiscal surplus registered in erstwhile years has flipped into large scale deficits to the tune of $160 billion in 2015 and 2016 respectively. In 2015, the deficit was partly met by domestic bond issuances and the remaining by liquidating reserves held in Sovereign Wealth Funds (SWFs). Saudi Arabia for the first time in 8 years issued local debt to raise approx. $26 billion from domestic banks and utilized almost $100 billion of its reserves. Raghu outlined that the impact of lower oil revenues has visibly impacted the Kuwaiti banks' deposit mobilization process, as government deposits account for sizeable portion. Fall in deposits growth coupled with governments drawing down on their savings and placement of domestic bonds by the governments with the local banks has usurped liquidity in the regional financial system causing interbank rates to rise. Though, the banks are well capitalized, they may not be able to act as the sole source of funding avenue for the governments. Rising debt levels for the GCC governments and uncertain outlook regarding oil prices, which determines the debt servicing capabilities, has led to higher cost of insurance for insuring government debt as evidenced by the widening spreads for Credit Default Swaps (CDS). While UAE, Kuwait Saudi Arabia and Qatar have robust fiscal reserves, Bahrain and Oman have minimal reserves by comparison. Lack of clarity regarding debt management policies of few GCC countries has caused wide spread speculation regarding the way the deficit could be financed. This uncertainty has resulted in fixed income investors demanding wider spreads for outstanding issues in GCC region. To forecast the sovereign debt issuance we have assumed assumptions regarding the way the deficit would be financed either by drawing down on the reserves or through raising debt. While Qatar and Oman have clearly provided indications regarding their approach to plug the deficit, Saudi Arabia and Bahrain budgetary documents fall short of such discussion. Apart from forecasting debt issuance through budgetary estimates, debt issuance till 2020 is estimated through IMF projections of fiscal deficit. — SG
