Gulf should explore new financing options for infrastructure development: S&P

Business Friday 12/February/2016 19:38 PM
By: Times News Service
Gulf should explore new financing options for infrastructure development: S&P

Muscat: Ratings agency Standard & Poor's (S&P) said on Thursday that Gulf sovereigns, as well as the region's banks will have fewer resources at hand to support the region's infrastructure rollout plan over the next few years, especially if oil prices decline further or remain low for longer.
"This is one reason why Gulf countries are starting to look at alternatives, such as public-private partnerships," said S&P credit analyst Karim Nassif in the report entitled, "To Pay For its Big Infrastructure Bill, the Gulf May Have to Look at Innovative Forms of Finance," which was published today.
S&P also estimated that Gulf sovereigns' overall capital spending over the next four years will be $480 billion, which includes Gulf Cooperation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
“We estimate that Gulf governments spending on projects alone—including infrastructure contracts awarded over the 2016 to 2019 period—could cost about $330 billion. Taking this and other research into account, we estimate that about $50 billion out of the $330 billion, we think, will be spent on projects that will be allocated specifically for infrastructure (including transport-related projects),” the ratings agency said.
“This compares with our estimates of about $604 billion in projects (including $100 billion of infrastructure projects) that will need funding through 2019. The difference between our estimates of capital spending on projects and project contracts awarded is as large as $270 billion through 2019.”
“In our view, Gulf governments are protecting capital spending as a share of overall expenditure to support growth and further their diversification strategies (see "Gulf Governments Protect Investment Spending to Support Growth," published on Oct. 7, 2015, on RatingsDirect).
At the same time, Gulf sovereigns are cutting in areas where they can afford to, or for what S&P considered nonessential infrastructure spending. Saudi Arabia, for example, reduced its 2016 transport and infrastructure budget by 63 per cent from the previous year. This illustrates the challenge Gulf countries will face to pay for infrastructure through traditional sources, including government funding, S&P noted.
Based solely on the developments described herein, no rating actions are currently warranted. Only a rating committee may determine a rating action and, as these developments were not viewed as material to the ratings, neither they nor this report were reviewed by a rating committee, it added.