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The Arab States and their

relationship to the global debt market 

November 2020


Borrowing billions, if not trillions of dollars of debt is not something new for countries in the Middle East. Arab states, including the likes of Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, and Jordan have been on a borrowing spree well before Covid-19 wreaked havoc earlier this year.


Source: The United Nations

Declining oil prices and the billion-dollar infrastructure development projects carried out by the governments were behind the massive debt pile of these nations at the beginning of this year. The global pandemic abruptly putting a stop to tourism and the collapse in crude oil prices left these nations with no other option but to borrow more. According to data from the World Bank, Gulf Co-operation countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates) have issued $100 billion in public and corporate debt this year, which is by far the highest ever reported number for a calendar year.

The outlook is not promising

The debt-to-GDP ratios of all the leading Arab nations are projected to deteriorate in 2021 as a result of the massive debt load these nations have assumed during the first 10 months this year.


Source: The Economist

Even after piling up massive amounts of debt, both Saudi Arabia and the United Arab Emirates would still be able to keep the debt-to-GDP ratio well below 50%, which is not a bad outcome considering the dire business conditions faced by these two nations this year. The situation, however, does not look promising for a few other countries including Bahrain, and investors who are chasing yield should ideally take this into consideration before buying any treasuries in these struggling nations.

It’s no secret that most Arab states rely on crude oil prices in one way or the other. The collapse of prices earlier this year, therefore, was not good news for the regional economy. Crude oil prices are currently hovering around $40 per barrel, but the majority of Arab nations require a much higher average price to breakeven from a fiscal balance perspective.

The massive debt pile of the region will come back to haunt them if oil prices remain under pressure for a prolonged time. In addition, the dire state of the travel and tourism sector is also proving to be a difficult-to-overcome challenge for this region.

Source: Refinitiv

To varying degrees, Arab nations will be negatively impacted by the hit to global tourism, and the debt pile would soon prove to be a burden if business conditions do not improve by the end of 2021.

Tax reforms are on the way

The UAE, Saudi Arabia, and Bahrain have all implemented value-added tax frameworks to increase government revenue. On Oct. 18, Oman gazetted a Royal Decree in which the government announced the Oman VAT Law with an effective date of April 16, 2021. Both Kuwait and Qatar have also confirmed implementing similar taxes in a bid to boost revenue to support debt repayments and planned infrastructure projects. Residents of Gulf Nations were not accustomed to being levied these types of taxes until very recently, but the massive debt pile on the balance sheets of Arab nations suggests that it could soon turn out to be the new normal.


Arab states have found solace in borrowed funds as the pandemic continued to wreak havoc in the Middle East region. While cash-rich countries with billion-dollar sovereign funds such as the UAE and Saudi Arabia might come out unscathed, other regional countries will be forced to allocate a double-digit percentage of their annual GDP to service debt, which could prove to be a drag on economic growth in the coming years.



About the author(s)


Harold Alby is a managing director and chief operating officer at Inova Capital. Justin Inniss is a managing director at Inova Capital.For more details on our insights please get in touch with us at Inova Capital AG on +41 415616905. Inquire about our ideas and nowcasting capabilities.

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