Qatar's public debt second highest in GCC
Qatar has one of the largest relative public debts in the GCC With a 'manageable' 29 per cent of debt level at its gross domestic product (GDP), the country has the second largest government debt in the region.
In gross terms, Bahrain has the largest debt burden, at 34 per cent of GDP. The UAE's Ras Al Khaima stands third-22 per cent. The other GCC countries carry small levels of public debt, much lower than 10 per cent of GDP, according to a Standard & Poor's research note released yesterday.
The ratings agency's report titled "The Gulf economies are going strong, but structural issues still weigh on the Sovereign Ratings" stated despite the region's relative wealth, and its forecast for 4.6 per cent GDP growth for the region in 2013, structural challenges continue to constrain sovereign ratings.
"There are still particular shortcomings in the effectiveness and predictability of policymaking in the GCC", S&P's credit analyst Dima Jardaneh said. "Weakness includes the quality of policy debate; the strength and depth of institutions; transparency of decision-making; data monitoring and reliability of information; legal frameworks and the rule of law; and succession risks".
The lack of monetary policy flexibility is also a rating constraint for the GCC, particularly in terms of exchange rate regimes, the credibility of monetary policy, and the effectiveness of the transmission mechanism via the financial system and capital markets.
The surplus nature of GCC economies and the reliance on conventional sources of funding and financing, especially commercial bank loans, have constrained the development of local currency debt markets. The total capitalisation of fixed income bonds is less than 10 per cent in all GCC states, except Qatar and Bahrain.
The S&P Ratings Services also note the GCC's monetary flexibility is weak because shallow local currency debt markets constrain the transmission of policy into the financial markets. This can hamper plans to broaden non-oil output bases, diversify the sources of funding including financial small and midsize enterprises, and undertake long-term investment projects.
"Fixed exchange rate regimes, the lack of independent monetary policy, and weak local currency instruments largely constrain the transmission of policy. These attributes and open capital markets largely shape GCC monetary frameworks. Nevertheless, the countries' open economies with their easy flow of goods and labor have largely underpinned the fixed exchange rate as a credible nominal anchor".
The report noted the possibility that oil reserves could peter out in some GCC countries much earlier than in others.
"The oil endowment varies significantly across the GCC. Reserves at the current production levels will last about 90 years in Abu Dhabi and Kuwait, and 70 years in Saudi Arabia, but are considerably lower in Oman and Bahrain where, at current production levels, supplies could run out in the next two decades", said Jardaneh.