As lower oil prices squeeze public finances, Kuwait plans help plug its budget deficit by raising as much as $9.9 billion from international debt markets.

The country’s finance minister Anas Al-Saleh said in a speech that the OPEC member also plans to borrow as much as 2 billion dinars ($6.6 billion) from the domestic market.  He said that in the 2016-2017 fiscal year, which began April 1, the budget deficit is expected to widen to 9.5 billion dinars.

The International Monetary Fund says that the budget deficits of the six-nation Gulf Cooperation Council could reach $900 billion by 2021 which is already evident and there has been a flurry of international bond sales from the six countries. Following a $5 billion sale by Abu Dhabi, Qatar raised a record $9 billion in May. Sources say that JPMorgan Chase & Co., HSBC Holdings Plc and Citigroup Inc. have been hired by Saudi Arabia, the biggest Arab economy, to raise at least $10 billion.

“Most of the available scenarios suggest that oil prices will remain, for the foreseeable future, lower than the levels required to attain a balanced budget,’’ Al-Saleh said.

He said that the market’s volatility and uncertainty around the growth of the global economy has been further exacerbated by Britain’s decision to leave the European Union  which may result in the accumulation of fiscal deficits.

Kuwait is rated AA at S&P Global Ratings and Aa2 at Moody’s Investors Service, the third-highest investment grade.

“Kuwait has one of the highest credit ratings in the world and I expect its bond to be well received, albeit at a price. Kuwaiti officials may opt to avoid the summer months in order to tap into the European investor base, and therefore will likely come to the market either in late July or early September,’’ Anita Yadav, head of fixed-income research at Emirates NBD PJSC, Dubai’s biggest bank, said.

The Kuwaiti minister said that while revenue of the country is expected to be at 10.4 billion dinars during the 2016-17 fiscal year, Kuwait estimates expenditure for the same period to be at 18.9 billion dinars. He added that the of the total revenues, the non-oil revenue will make up 1.6 billion dinars.

While the Kuwaiti government had estimated that the deficit for the 2015-2016 fiscal year would be around 8.2 billion, Kuwait posted a 5.5 billion dinar deficit for same time period, Al-Saleh said. This was a welcome sign for the oil based economy. In May the government had announced that consulting firm Oliver Wyman & Co. had been hired to provide valuable advice on formulating a debt strategy.

Carla Slim, an economist for Standard Chartered Plc in Dubai however said that Britain’s vote may cause “some delays in GCC international issuances”. “We still see appetite for GCC bonds in general,’’ Slim however said.

(Adapted from Bloomberg)

Categories: Economy & Finance