The Gulf countries have launched a series of measures to reduce public spending. After having quadrupled their indebtedness over the last eight years following the collapse of oil prices in 2014, a phenomenon caused by oversupply and fierce competition between producers, the Arab monarchies have decided to put an end to this period .
The regional economy started to recover thanks to the reforms undertaken at the time, but the COVID-19 pandemic led to another collapse in the energy market. These needs have prompted governments to raise spending ceilings againwith consequences from which they are only just beginning to recover.
The Russian invasion of Ukraine sent shock waves through energy markets. The supplanting of Russia as the preferred supplier of oil and gas has driven up prices, to the benefit of producing countries in the Gulf. Huge marginal gains encouraged individual Arab monarchies to cut subsidies or freeze public sector employmentamong other cost-cutting measures.
Even before the war, countries like Bahrain and Saudi Arabia rolled out economic plans to cut public investment in order to maintain some fiscal balance.. Indeed, the Saudi government’s accounts for this year closed the way to borrowing and projected a surplus. However, a large part of the Gulf countries recorded budget deficits during this period, which were financed by the withdrawal of reserves, bank loans and the issuance of bonds. Regional debt has reached $617 billion, according to the International Monetary Fund (IMF).
Oman, for example, fell eight places in the credit ranking due to high debt and is not attractive for international investment. The Sultanate’s public debt has risen from 5% to over 70%. In response, Muscat issued debt securities to finance its investmentsa move that, along with other economic reforms, helped her regain her credit rating.
Gulf country debt continues to attract strong global investment demand. The market generally values Gulf bonds above the levels set by the various rating agencies.