When oil prices started their decline in mid-2014 OPEC producers maintained their pump-at-will policy in an effort to maintain market share and to drive out the competition
The GCC fixed income market has seen increased activity on the back of governments’ efforts to plug budget deficits as oil prices do not seem to be recovering to the previous highs in the short to medium term.
MENA’s debt capital market is small and relatively under-developed at a mere 0.25% of its global counterpart with plenty of room to grow given the low government debt to GDP and high reserves.
The majority of GCC government and corporate issues (those with at least USD 200m outstanding) are investment grade rated and provide investors with the opportunity to earn a premium on a risk-adjusted basis.
The current impending need for governments to plug deficits will promote the development of yield curves, paving the way for GCC corporates to issue debt instruments.
The GCC, as a whole, has experienced a drop of approximately 2.3% in their reserves over the past two years. Saudi Arabia’s reserves have dropped 21% while Oman’s reserves have dropped 24%.
There are several key challenges to the development of a regional debt market such as depth and liquidity of the secondary market, corporate transparency and governance for private companies, and education of investors in trading this asset class.
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