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MENA states to raise sovereign borrowing by 25 percent in 2019: report

The annual S&P Global Ratings report is out and it shows the effects of governments continuing to finance fiscal deficits and rollover debt.

MENA countries to see long-term commercial borrowing increase to a total of $136 billion in 2019 44 percent of MENA sovereigns' gross borrowing will go toward refinancing maturing long-term debt Saudi Arabia is expected to account for 22 percent or $29.3 billion of the long-term commercial borrowing

Thirteen Middle East and North Africa countries are expected to increase their sovereign long-term commercial borrowing by 25 percent, compared to a 38 percent fall in 2018, according to the latest report released by S&P Global Ratings.

The rating agency projects a $27 billion increase in long-term commercial borrowing in 2019, taking the total to $136 billion, compared to $109 billion in the previous year.

Higher oil prices and fiscal consolidation measures among GCC countries emphasized reduced funding needs in 2018. However, lower oil prices in the region in 2019 will not support further reduction in GCC fiscal deficits, thus, raising financing needs.

S&P Global Ratings is an annual survey of global sovereign debt and borrowing, which compiles data pertaining to all rated sovereigns.

"We expect Kuwait, Egypt, and Iraq to significantly increase their gross commercial long-term borrowing in 2019 compared in 2018," the report stated. "We expect that 44 percent of MENA sovereigns' $136 billion of gross borrowing this year will go toward refinancing maturing long-term debt, resulting in estimated net borrowing requirements of $76 billion. Adding amounts owed to bi- and multi-lateral institutions, total debt will reach about $892 billion, which is a year-on-year increase of 11 percent or $85 billion."



Saudi Arabia is expected to account for 22 percent or $29.3 billion of the total long-term commercial borrowing among MENA countries, while Egypt will account for another 20 percent at $27.6 billion, and Lebanon will account for 14 percent with $19 billion.

A majority of GCC countries have been tapping international debt markets to meet their funding needs and reduce liquidity pressures in domestic banking systems.

With the U.S. Federal Reserve drawing a more "patient" path forward regarding rate hikes, a change from its hawkish stance in December 2018, borrowing costs are likely to remain low.

In terms of deficit-financing strategies, Bahrain, Oman, and Qatar have to a large extent focused on debt issuance instead of asset drawdowns.

Kuwait's new debt law to potentially raise its debt ceiling could mean that the country would likely issue $15 billion of long-term commercial debt.