GCC Economic Outlook: Global Rate Cuts and Record Issuances
GCC Economies Positioned for Growth with Expected Global Rate Cuts
The imminent rate cuts by global central banks in 2024 are anticipated to have a predominantly positive impact on GCC economies, according to Kamco Invest's December 2023 GCC Fixed Income Market Update. The report emphasizes the softer-than-expected global economic slowdown and lower inflation rates in the GCC, fostering favorable conditions for GDP growth. With thriving non-oil GDP, a robust project pipeline, and elevated oil prices, the region is poised for economic resilience. The report also highlights the GCC's strong credit profile, recent credit upgrades, and stability in currency and fixed income funding markets.
In the primary market, the GCC witnessed substantial bond and sukuk issuances, surpassing market expectations in the second half of 2023. Notably, Saudi Arabia's sukuk issuances, coupled with bond issuances in the UAE, drove aggregate issuances in the GCC to over $100 billion, reaching $107.8 billion by mid-December 2023. This marked a significant increase from the $90.0 billion total bond and sukuk issuances in the GCC for the entire year 2022.
The report indicates that GCC governments are anticipated to face heightened levels of maturities in their bonds over the next five years, with sovereign maturities standing at $209.3 billion and corporate maturities at $177.9 billion. The elevated maturities are attributed to short-term issuances (less than five-year maturity) in 2020 and 2021, undertaken by governments to address deficits during the pandemic. The majority of these maturities are denominated in US dollars (59.7%), followed by local currencies such as Saudi riyals and Qatari riyals. Most of these maturities are high investment grade or A-rated instruments.
In terms of instruments, conventional bonds dominate, accounting for $244.3 billion in maturities over the next five years, while sukuk maturities are expected to reach $142.9 billion. Saudi Arabia is set to witness the largest maturities during 2024-2028, totaling $131.9 billion, followed by the UAE and Qatari issuers at $122.5 billion and $71.4 billion, respectively. Kuwait has the smallest maturities at $14.1 billion due to a lack of government issuances.
The report further breaks down sector-wise maturities, revealing that banks and other financial services sectors have $130.9 billion in maturities over the next five years, representing 73.6% of total corporate maturities and 33.8% of total maturities in the GCC until 2028. The energy sector follows with maturities of $17.9 billion, while utilities and communications have $11.4 billion and $6.1 billion, respectively. UAE banks have the highest maturities over the next five years at $60.2 billion, trailed by Qatari banks at $26.3 billion. Notably, banks in the two countries account for 22.3% of total bond/sukuk maturities in the GCC over the next five years.
Real estate maturities are concentrated in the UAE and Saudi Arabia, totaling $6.3 billion and $2.9 billion, respectively, until 2028. The report highlights a decline in perpetual instrument issuances in 2023, with aggregate issuances dropping from $11.5 billion in 2022 to $2.0 billion in 2023.
In summary, the GCC economies are expected to benefit from global rate cuts, providing impetus for economic growth, stability, and resilience, with notable developments in bond and sukuk issuances and varied sector-wise maturities over the next five years.
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By- Sahiba Suri
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