Strong GCC sovereign external balance sheets despite increased banking sector external debt: S&P

GCC countries will have an average of $660 bn of gross external debt
Strong GCC sovereign external balance sheets despite increased banking sector external debt: S&P
GCC's sovereign external balance sheets continue to exhibit resilience.

According to a recent report released by S&P Global, the credit ratings agency estimates the GCC countries will have an average of $660 billion of gross external debt, both public and private, maturing annually over 2023-2025, up from about $250 billion in 2013.

The region’s banking systems contribute 70 percent on average to this external debt rollover, driven by their high stock of contractually short-term external debt (including deposits), s&P said.

Read more: S&P: Gulf banking systems are resilient in the face of geopolitical pressures

“Given most systems’ strong net external asset positions and solid liquidity profiles, the region’s banks have buffers to mitigate a hypothetical sudden stop in external funding or capital outflows.”

With some exceptions, wealthy national governments also have the capacity to provide support that dwarfs liability outflows under our hypothetical stress scenario, the agency noted.

S&P further highlighted that the latest war between Hamas and Israel heightens global geopolitical risks with potential adverse implications for investor confidence and external funding flows.

“While not underestimating the severity of the human tragedy, we assume the conflict remains largely limited to Israel and Gaza and does not trigger external funding outflows or pressure banking sectors in the Middle East and North Africa,” the report said. 

However, according to S&P, there may be scenarios where the conflict widens, leading more risk-averse investors to withdraw funds from the region.

“In our hypothetical stress test of banking systems in the GCC, along with Egypt and Jordan, external funding outflows could reach $220 billion, or about 30 percent of the tested systems’ cumulative external liabilities, although most can cope by liquidating their external assets,” the agency said.

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