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MANAMA: Real GDP growth in the GCC will take 2-3 years to return to pre-pandemic levels, with the recovery most protracted in the more economically-diversified sovereigns, where key sectors such as transportation and tourism will be slow to return to health, says a report by Moody’s Investors Service.
The negative 2021 outlook for sovereign creditworthiness in the six-nation bloc reflects the coronavirus-related fall in oil revenue which is driving this year’s deterioration in fiscal strength while constraining government spending and slowing the economic recovery.
“Our negative outlook for GCC sovereigns reflects the coronavirus pandemic’s impact on oil revenue and our expectations for the erosion of fiscal strength experienced last year to extend throughout 2021,” said Thaddeus Best, a Moody’s analyst and the report’s co-author.
“The still elevated cost of funding for lower-rated sovereigns in the region will amplify these strains.”
The lingering economic effects of the pandemic also mean that citizen employment rates are unlikely to recover soon given high targets for citizen employment in private sector industries that have been hard hit by the shock.
Moody’s forecasts that GCC government debt burdens will rise on average by around 21 percentage points of GDP over 2019-21, compared with 14 percentage points on average for advanced economies.
However, sovereign wealth fund buffers will mitigate the impact of higher gross debt burdens for most GCC sovereigns.
Borrowing
Despite a significant easing in market conditions compared with the first half of 2020, Moody’s expects that borrowing costs will remain above pre-coronavirus levels for less creditworthy GCC sovereigns.
For the region’s stronger governments, flight to quality has lowered yields to levels that will continue to allow opportunistic and long-dated borrowing.
“While Bahrain has no liquid sovereign wealth fund (SWF) assets, it issued $2 billion in international bonds and sukuk in May 2020, then again in September 2020, and its mid-curve bonds trade 130 basis points below Oman’s on the secondary market,” said Mr Best.
According to him, the ability of the Bahrain government to issue the equivalent of 12pc of GDP in the international capital markets, despite the severe oil price shock and the tightening of global financing conditions, underscores the value of GCC support.
In 2021, Moody’s expects that just over half of Bahrain’s funding will come from debt issuance, with the remainder met through disbursements under the GCC support package.
avinash@gdn.com.bh
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