According to estimates made by the British bank HSBC, the nations of the Cooperation Council for the Arab States of the Gulf (Gulf Cooperation Council, GCC), will have to pay back or restructure $94 bln in debt within the next two years, including $52 bln worth of bonds and $42 bln in syndicated loans. The lion’s share of that debt accrues to the United Arab Emirates and Qatar, one of the world’s major crude oil suppliers. Additionally, the GCC nations will have to deal with a $395 bln deficit in fiscal and foreign trade accounts over the period, exacerbating the situation to the point of insufficiency in FX reserves to cover the losses.
Should these nations extend their selloffs in US Treasuries, which are held by their governments in order to finance their FX rate stability and budget losses, they would be short of cash to refinance their debts.
“[This] will complicate efforts to refinance existing paper that matures over 2016 and 2017," Simon Williams of HSBC wrote. "With the Gulf acting as a single credit market, the refinancing challenge will likely be much more broadly felt … compounded by tightening regional liquidity, rising rates and recent downgrades."
The Middle Eastern oil producers will be facing increasing debt pressure until 2020, and the UAE will be paying back or otherwise refinancing their obligations, which account for the largest share of the $92 bln total debt burden. In the medium-term, the low oil prices would not provide the GCC nations with enough export revenues to allow them to meet all of their obligations.
The overall volume of the GCC countries’ indebtedness, including securities maturing post-2017, stands at $610 bln.
Recent credit rating downgrades by the world’s leading agencies have made the situation worse, making debt restructuring more complicated for the GCC nations. Standard & Poor’s revised downward the Saudi and Omani debt, and junked Bahrain’s credit rating first time on the record.
Another rating agency, Fitch, however, reaffirmed the credit ratings of major UAE banks, including Abu Dhabi Commercial Bank, National Bank of Abu Dhabi, FGB, Emirates NBD, and Union National Bank. Part of the reason is the UAE's financial sector and infrastructure are far more developed than those of their neighbors.
“We view Abu Dhabi, and by extension the UAE, as a resilient economy, supported by robust growth, particularly through strong government spending on infrastructure projects and an expanding non-oil sector. However, growth is moderating in response to lower oil prices,” Fitch noted.
HSBC, in turn, expects a greater scale of GCC bonds being issued in order to finance short-term obligations, resulting in an even greater debt imbursement in these nations, which eventually might lead to a full-blown financial crash should low oil prices linger medium-to-long term. For now, HSBC confident GCC countries will service their debts properly in the short-to-medium-term.