Saudi Arabia to lead $300bn regional funding drive says S&P

Saudi Arabia accounts for half of the likely debt requirement of regional sovereign borrowers over the next three years, according to S&P. (Supplied)
Updated 08 November 2018
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Saudi Arabia to lead $300bn regional funding drive says S&P

  • GCC states have $300bn requirement
  • Bahrain and Qatar expected to rely on debt to plug deficits

LONDON: Gulf states will need to raise as much as $300 billion in funding over the next three years with the lion’s share going to Saudi Arabia, according to a new report.
High oil prices mean that the funding needs of Gulf borrowers are accumulating at a slower pace, S&P Global Ratings said in a report.
Still, GCC government net debt positions have significantly deteriorated since 2015 and now account for a much bigger proportion of fiscal revenue, the ratings agency said.
Saudi Arabia’s deficit alone accounts for about half of the Gulf states’ expected $300 billion financing needs — but as a proportion of overall GDP it is broadly in line with Abu Dhabi and Oman.
Rising interest rates and tighter financing conditions may present a challenge to some regional boomers according to S&P.
“Changes in domestic and international liquidity conditions could present challenges for sovereign issuance and tilt the financing balance toward assets from debt, or increase debt-servicing costs, as is particularly the case in Bahrain (where interest payments account for 23 percent of government revenue),” said S&P.
“We note that global liquidity is becoming scarcer and more expensive, while regional banking sector liquidity remains adequate.”
The rising cost of debt may mean that some regional governments will increasingly focus on asset sales.
Perceived regional geopoitical risk, most notably surrounding tensiions between Iran and Saudi Arabia along with its Gulf allies as well as the standoff between Qatar and some of its neighbors, could make some international investors wary of the region and demand a higher risk premium.
S&P expects debt issuance to account for some 70 percent of the $300 billion financing requirement of the Gulf states.
The ratings agency estimates that gross debt in the region has increased from an average of 14 percent of GDP at the end of 2014 to an estimated 38 percent of GDP by the end of 2018.
Bahrain and Qatar are expected to finance the vast majority of their deficits through debt, while Dubai and Abu Dhabi are likely to rely more on their assets.
S&P expects Bahrain’s net debt to have nearly tripled between 2015 and 2021 while Oman would slip into a net debt position in 2019.
Saudi Arabia’s net assets are forecast to have nearly halved to 65 percent of GDP by 2021.


Mideast plays key role in Chinese export of armed drones, report says

Updated 17 December 2018
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Mideast plays key role in Chinese export of armed drones, report says

  • China has exploited America’s selective drone export policy to become an increasingly influential player in meeting demand
  • The report is entitled “Armed Drones in the Middle East: Proliferation and Norms in the Region”

BEIRUT: The use of armed drones in the Middle East, driven largely by sales from China, has grown significantly in the past few years with an increasing number of countries and other parties using them in regional conflicts to lethal effects, a new report said Monday.
The report by the Royal United Services Institute, or RUSI, found that more and more Mideast countries have acquired armed drones, either by importing them, such as Jordan, Iraq, Saudi Arabia and the United Arab Emirates, or by building them domestically like Israel, Iran and Turkey.
China has won sales in the Middle East and elsewhere by offering drones — otherwise known as UAVs or unmanned aerial vehicles — at lower prices and without the political conditions attached by the United States.
The report , entitled “Armed Drones in the Middle East: Proliferation and Norms in the Region,” said that by capitalizing on the gap in the market over the past few years, Beijing has supplied armed drones to several countries that are not authorized to purchase them from the US, and at a dramatically cheaper price.
“China, a no-questions-asked exporter of drones, has played and is likely to continue playing a key role as a supplier of armed UAVs to the Middle East,” it said.
The report explored where and how each of the states have used their armed drones and whether they have changed the way these countries approach air power. It found that Iran, the UAE and Turkey all changed the way they employ airpower after they acquired armed drones.
For Turkey and the UAE, armed drones enabled them to conduct strikes in situations where they would not have risked using conventional aircraft, it said. Iran developed armed drones from the outset specifically to enable to project power beyond the reach of its air force, which is hamstrung by obsolete aircraft and sanctions, the report added.
The report said it remains to be seen whether and how the loosening of restrictions on the exportation of armed drones by the Trump administration will alter dynamics in the region.
“Nonetheless, proliferation in armed UAVs in the Middle East is unlikely to stop and could, in fact, even accelerate,” the report said.