Sovereign borrowing in Mena to post $9.2 billion rise in 2020
dubai — Sovereigns in the Middle East and North Africa are projected to record a six per cent ($9.2 billion) increase in long-term borrowing from commercial sources in 2020 while global borrowing is on track to soar to $8.1 trillion, according to a leading rating agency.
S&P Global Ratings said it expects the 53 emerging market (EM) Europe, the Middle East and Africa (Emea) sovereigns to borrow the equivalent of $473.29 billion in 2020 from longterm commercial sources in 2020, representing an increase of 0.6 per cent compared with 2019, amid favourable financing conditions.
The rating agency said Mena 13 sovereigns it rates recorded a strong increase of 26 per cent in their borrowings in 2019 mainly due to the low base effect in 2018, when sovereign funding needs were lower thanks to high oil prices and fiscal consolidation efforts in the GCC.
Governments in the Gulf region will continue to tap debt capital markets this year, but their external financing needs are likely to be lower, according to Japanese bank MUFG.
Sovereign issuance by Gulf governments is expected to reach around $31.9 billion in funding to bridge budget deficits as they look to take advantage of a pause in interest rate hikes and the low cost of debt globally, according to Ehsan Khoman, head of Middle East and North Africa research and strategy at MUFG. However, this is likely to be significantly lower than the amount issued in 2019.
At $52 billion, Saudi Arabia tops the lists in the six-member economic bloc of GCC. S&P Global said it expects Saudi Arabia, Egypt, and Lebanon to be the largest issuers of commercial debt in 2020, with combined issuance representing about 70 per cent of the region’s total.
S&P Global analysts noted in their report that with increasing issuance plans in 2020, Saudi Arabia — Mena’s largest economy— will also become the seventh largest issuer in Emea and among the top 20 sovereign issuers globally.
“We think Saudi Arabia’s estimated increase in borrowing will come from efforts to cover most of its relatively wide fiscal deficit by issuing debt rather than by drawing on assets. As was the case in previous years, the next largest borrowers will likely be Egypt with $46 billion and Lebanon with $13 billion,” said the report.
Apart from Saudi Arabia, Iraq will also face the biggest increase of gross commercial long-term borrowing in 2020 compared with 2019, with projected commercial issuance (mostly domestic) of $12 billion amid a looser fiscal stance partly stemming from the completion of IMF programs alongside higher spending needs.
S&P expects that about 51 per cent of Mena sovereigns’ $163 billion of gross borrowing this year will go toward refinancing maturing long-term debt, resulting in an estimated net borrowing requirement of $80 billion.
While Egypt will face the highest debt rollover ratio (including short-term debt) in the region, reaching 33 per cent of GDP, followed by Bahrain (25 per cent) and Lebanon (22 per cent, most GCC countries will continue to diversify their funding and liquidity needs through international debt issuance.