A higher average oil price over the course of 2018 meant Gulf governments tapped debt capital markets less frequently throughout the year, a new report has said.

A note from KAMCO Research, a division of Kuwait Asset Management Company, published last week stated that "after three consecutive years of growth and record issuances in 2017", the fixed income market in the Gulf Cooperation Council (GCC) paused last year, with primary debt issuance of bonds and sukuk falling by 14.1 percent to $105.9 billion.

The decline was principally due to lower issuance by Gulf governments, which fell by around one third as higher oil prices supported state budgets. Analysis done by the firm on International Monetary Fund (IMF) data has calculated that the combined deficit of GCC governments should have falled to $14 billion (or less than 1 percent of GDP) in 2018 - an 82 percent reduction on the $79 billion of deficits incurred in 2017.

Yet despite the lower demand from governments, corporate  issuance grew by 20 percent last year, with firms raising $47.2 billion through bond and sukuk issuance, KAMCO's report said, compared to $39.5 billion in the prior year.

In the broader MENA region, debt market issuance dropped by 16 percent to $145 billion, driven again by lower government issuance. Government bond issuance across MENA fell by 25 percent to $76.1 billion while corporate issuance increased by almost 20 percent to $35.5 billion. Qatar led the way, with the government issuing $26 billion worth of bonds, compared to just $6.8 billion in the prior year. In the UAE, issuance fell by almost 60 percent to $19.6 billion, compared to $31.1 billion in the prior year.

Sukuk issuance in the GCC fell by 20.3 percent during the year to $33.4 billion, as the amount of sukuk issued by Saudi Arabia declined by 54 percent to $18.6 billion. Sukuk issuance by the UAE more than doubled to $8.6 billion in 2018, up from $3.9 billion a year earlier.

Raghu Mandagolathur, head of research at Kuwait Financial Centre, Markaz, said in an emailed response to questions that despite the lower issuance levels in 2018, "GCC sovereign issuance is expected to increase in 2019".

"Taking cue from the budget plans released by Saudi Arabia and Oman for 2019, government spending is expected to pick up compared to the previous year," he said.

Mandagolathur added that the oil price is expected to stabilise at a lower level than it spent most of the first 10 months of last year, with ratings agency S&P Global last week forecasting an average price of $55 per barrel of Brent crude in 2019 and 2020.

"Considering the lower levels of oil prices projected for 2019 and the uptick in infrastructure spending, GCC economies are expected to tap the bond markets during 2019 much more than the previous year," Mandagolathur added.

Globally, the number of debt issuance deals declined by 12 percent last year, with 20,692 deals completed during the year, according to the International Financing Review, citing Refinitiv data.

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(Reporting by Michael Fahy; Editing by Shane McGinley)
(michael.fahy@refinitiv.com)

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