Persian Gulf Governments Set Debt Record as Oil Slumps
TEHRAN (Tasnim) – Middle Eastern governments have already set a record for debt sales, as the sustained fall in oil prices weakens public finances across the world’s largest crude-exporting region.
Countries including the United Arab Emirates and Bahrain have borrowed $8.6bn on international capital markets so far this year, beating the previous high set in 2009, when the Persian Gulf’s construction projects and property boom came unstuck after Dubai shocked investors by asking for a debt standstill.
Debt markets in the region may receive a further lift in the next month as governments and state-backed companies attempt to wrap up sale plans before the holy Muslim month of Ramadan begins on June 7.
“The low oil prices have led to an acute fiscal crisis in the region, hence the sudden need for debt,” said Philippe Dauba-Pantanacce, economist at Standard Chartered. “As these are small countries that want to maximize their borrowing opportunities they are looking at international markets to find the largest pool of potential lenders.”
Persian Gulf governments including Qatar, which last year raised a loan of more than $5bn, are already in talks with banks to tap international bond markets for the first time in years, emboldened by the success of Abu Dhabi’s sale of debt in April, in which the emirate attracted $17bn of bids for a $5bn bond.
Bankers say Saudi Arabia is expected to issue its debut international bond after the summer, following the arrangement of a $10bn loan with a group of banks including HSBC, Bank of Tokyo-Mitsubishi and JPMorgan.
The issuance aims to ease pressure on local bank liquidity, which has tightened since the oil price slide, as well as providing a benchmark for the companies to tap markets.
Other possible future debt issuers include the UAE’s federal government, which is looking into the possibility of raising its own debt in addition to bonds sold by individual emirates, the Financial Times reported on Wednesday.
“This is the year of debt,” said one banker based in Dubai. “Amid the gloom, the DCM people are keeping busy.”
The slide in oil prices has put government finances under intense pressure, forcing regional economies to reconsider borrowing needs as reduced oil export revenues widen budget deficits.