Govt-related entities’ debt metrics fall in GCC: Fitch

Government-related entity (GRE) debt in the GCC countries has been falling as a share of GDP but will remain a key tool for policy-making in 2024, Fitch Ratings said in a new report.

'This is because GCC governments continue to use GRES to drive economic diversification and support budgetary priorities. Trends will diverge, ranging from Oman’s efforts to reorganise and improve the sustainability of its GRES to Saudi Arabia’s leveraged push to use GRES to spur economic diversification,' Fitch said.

Fitch estimates that aggregate debt at GCC non-bank GRES declined to 25% of GDP in 2022 from 33% in 2021. Debt ranged from 13% of GDP in Kuwait to 44% in the Abu Dhabi.

Aggregate debt of GCC government-related banks (wholesale or interbank funding, excluding customer deposits) fell to 16% of GDP in 2022 and ranged from 6% of

GDP in Bahrain to 44% in Qatar.

The amount of contingent liabilities from banks in general is even larger, with sector assets ranging from 91% of GDP in Oman to 225% in Qatar, due to depositor protection by governments, the rating agency said.

According to Fitch, 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 exposure against the strength of their balance sheets. However, the risk has moderated for both in recent years, contributing, in conjunction with other factors, to recent positive rating actions,' Fitch said.