Qatar’s assets are offsetting government-related entity (GRE) debt, Fitch Ratings said and noted that a partial recovery from the Covid-19 pandemic and rising oil prices are reducing GRE debt as a percentage of GDP in the GCC in 2021.
But in most countries, Fitch Ratings said GRE debt levels remain higher than before the pandemic.
The upward trend in ERG debt / GDP that has manifested since 2014 may resume as ERGs help boost national economic agendas, aimed at job creation, diversification and energy transition, said Fitch Ratings .
The increased focus on privatization and asset sales could moderate this trend over time, he said.
The aggregate non-bank GRE debt of the GCC reached 37% of GDP in 2020 (an increase of 7 percentage points from 2019), partly due to lower nominal GDP due to lower oil prices and recessions. induced by Covid-19. The ratio is 32% compared to the GDP forecast for 2021.
The overall debt of banks linked to the GCC government (wholesale or interbank financing, excluding customer deposits) reached 24% of GDP in 2020.
However, the potential contingent liabilities of banks are larger, with sector assets reaching over 300% in Qatar, for example.
All GCC countries have a habit of supporting their ERMs, either on an ongoing basis or in times of distress. The likelihood of future aid is high given past experience, combined with the continued importance of BRMs to national economic growth strategies and, frequently, their status as national champions.
In much of the GCC, large sovereign net foreign assets and low net debt limit the credit impact of large or growing contingent liabilities, Fitch Ratings said.
The high stand-alone credit quality of some ERGs, especially most of the region’s national oil companies, is also a mitigating factor.
Nonetheless, many GCC sovereign ratings rely on exceptional balance sheets to offset structural weaknesses, including undiversified economies and political risk.
Fitch said he generally does not include GRE debt in government debt, unless it is guaranteed and likely to materialize on a government’s balance sheet.
Contingent liabilities could crystallize if a government assumes the obligations of an ERG, or if it has to make transfers that widen its budget deficit. Other contingent liabilities not covered in this report include liabilities arising from pension funds or public-private partnerships (for example, power purchase agreements).