In recent days and weeks, most of the GCC governments have announced plans (or hinted at) issuing sovereign bonds. Kuwait, Abu Dhabi, Dubai (of the UAE), Qatar and Bahrain have all suggested they would issue bonds in coming months, totalling several billion dollars.
In recent years, the issuance of sovereign debt by GCC governments has been quite limited to Bahrain and Oman in light of the enormous surpluses accrued in light of the once-soaring oil prices. In fact a few sovereigns, and sub-sovereigns like Abu Dhabi, did not even have credit ratings. Instead most of the limited bond issuance was by government-linked companies throughout the region. Yet, and as we have explained in a recent piece, with the reversal in hot money, in addition to the the losses and continued losses in the region’s equity markets, the cost of long-term borrowing sky-rocketed, highlighting the vulnerability of relying on external finance even as new revenues began to fall as investment returns and oil revenues fell sharply. Also, with external finance expected to grow at a slower pace in the face of the continued global liquidity crunch, GCC countries are left with no other option but to try to explore other sources of financing to tap the latent funds available in the region and from foreign investors looking for relatively safer credit risks.
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