Since 2014, low oil prices have contributed to rising deficits in the Gulf Cooperation Council (GCC). S&P Global Rating’s regional expert and associate director, Karim Nassif, shows FTSE Global Markets that growing deficits are transforming GCC governments’ subsidy and tax policies, and are expected to spur much needed financial innovation throughout the region.
Amid weaker economic growth – with governments implementing reforms (including higher taxes and lower subsides) to accommodate the shift in energy markets – all corporate and infrastructure companies have experienced direct and indirect effects.
Recently downgraded companies mainly include smaller private companies, which have been dependent on government subsidies and are expected to remain highly exposed in the long term. However, larger private companies that have previously adopted conservative funding strategies, are leaders in their respective fields, and are not dependent on government subsidies, are anticipated to continue faring well.
In addition, large government related entities (GRES) with special government mandates are expected to fare best and maintain a positive outlook. This is because large GREs in the GCC are backed by their governments and are pinned to the credit rating of their sovereigns.
Nassif adds that S&P expects alternative financing and capital markets to deepen in the region as bank liquidity continues to dry up.
The full article can be read at the news section of FTSE Global Markets.