GCC prominent among 22 sovereigns with liquid assets over 25% of GDP

JEDDAH — The Gulf Cooperation Council (GCC) countries are among the 22 sovereigns with liquid assets exceeding 25% of GDP, and three of them have liquid assets worth more than 100% of GDP, S&P Global Ratings said in its report titled “Government Liquid Assets And Sovereign Ratings: Size Matters” released Monday.

The seven sovereigns rated by S&P Global Ratings have liquid government assets totaling more than 100% of GDP; notably, three are members of the Gulf Cooperation Council.

Of the seven sovereigns whose assets exceed 100% of GDP, more than half are hydrocarbon producers: Kuwait, Norway, Abu Dhabi, and Qatar. Combined, the seven have accumulated $3 trillion in assets (200% of GDP on average) to date. Such assets, which are typically managed by sovereign wealth funds, represent the largest component of our estimates. The majority of these assets are invested externally, the report noted.

“In our opinion, when a stock of government assets is that large, a sufficient portion will very likely be available for use in combatting the effects of pronounced economic cycles, without materially impairing the sovereign’s balance sheet.”

S&P Global Ratings considers all of a sovereign’s external general government assets to be liquid if the amount exceeds 100% of GDP when calculating net general government debt and narrow net external debt ratios. “We believe that the sovereign will be able to utilize a significant portion of its assets in the event of financial distress to support its creditworthiness.”

The report added that the average rating on the seven sovereigns is ‘AA’, compared with an average of ‘BBB-‘ on all sovereigns S&P rated globally.

“Our ratings on Kuwait and Abu Dhabi remained stable at ‘AA’ throughout the recent slump in oil prices, underlining the rating stability provided by having large liquid assets,” it said, adding that “our rating on Qatar moved to ‘AA-‘ from ‘AA’ in August 2017.”

It noted that Bahrain, Oman, and Saudi Arabia felt the drop in prices more keenly and their stock of liquid assets is below 100% of GDP.

“We estimate that the nominal value of overall GCC government liquid assets fell by roughly $90 billion in 2015, although Kuwait, Abu Dhabi, Qatar and, at that time, Saudi Arabia’s liquid-assets-to-GDP ratios stayed well above 100%. The decline was mainly because governments used their assets, or the investment returns they generated, to finance fiscal deficits caused by the drop in oil prices,” the report noted.

However, Kuwait and Abu Dhabi were the exceptions, “where we estimate nominal asset growth.”

In Kuwait’s case, this resulted from a legal requirement for the government to transfer 10% of revenues to the country’s Future Generations Fund, a high nominal stock of assets that provided significant annual returns, and relatively low fiscal break-even levels, the report further said.

Similarly, Abu Dhabi has a huge amount of nominal government assets and was largely able to contain its fiscal deficits.

“Excluding Kuwait, we expect the average liquid-asset-to-GDP ratio for all GCC members will remain flat at about 110% of GDP until 2021. However, on average, we expect the ratios will decline by about 8% (or 14% of GDP) in 2018 versus 2017.”

Key to the deterioration this year is a strong denominator effect.

S&P Global Ratings expects GDP to recover faster than asset growth, in line with oil price assumptions for 2018, and as continued government spending maintains fiscal deficits but boosts economic activity. When an economy relies heavily on oil, nominal GDP plummets alongside oil prices (all other factors remaining unchanged), as they did in 2014. This leads to an increase in the ratio of general government assets to GDP despite a nominal decline in assets (because nominal GDP declined more than assets), as illustrated in Kuwait’s 2015 data, the report explained.

By Staff Writer, The Saudi Gazette,27 AUGUST, 2018
© Copyright 2018 The Saudi Gazette. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).

Recently discovered oilfield expected to produce 200,000 barrels of oil daily

MANAMA: Bahrain’s oil reserve has reached about one billion barrels but is expected to increase to 80bn of shale oil and between 10 and 20 trillion cubic feet of deep gas with the new oil and gas discoveries.

The government expects production of 200,000 barrels of oil daily from its recently discovered oilfield, said economic expert Dr Jaffar Al Saegh.

“Saudi Arabia’s plan to increase in future Bahrain’s share from the offshore Abu Safa oilfield, shared with Bahrain, to about 75pc will add to the kingdom’s revenues nearly $1.5bn annually should oil prices remain at around $70 per barrel,” he told our sister paper Akhbar Al Khaleej.

05 Aug 2018

Bahrain construction sector grows amid new infrastructure and energy projects

Rising investment in infrastructure and stronger capital inflows for industrial expansion are combining to boost activity in Bahrain’s construction sector, which expanded by 6.7% year-on-year (y-o-y) in the first quarter of 2018, according to data released by the Information and eGovernment Authority last month.

Given that the sector makes up around 7.5% of overall economic activity, construction growth, along with first quarter gains in manufacturing (4.2%) and real estate and business activity (3.7%), contributed to the non-oil sector’s y-o-y expansion of 1.9%.

The sector’s strong performance helped to offset a 14.7% contraction in the oil industry, caused by a drop in production. However, the weaker showing by the energy sector drew overall GDP into negative territory, contracting by 1.2% y-o-y in the quarter.

Infrastructure projects drive activity
Construction is expected to continue to be a driving force for the economy in the short to medium term, with the increased flow of state-backed infrastructure developments filling order books and injecting capital into the country, according to a report from the National Bank of Kuwait (NBK).

Released in mid-June, the report said plans to carry out $8bn in infrastructure projects in areas such as transport, utilities and housing – the country’s largest-ever pipeline – will underpin non-oil growth, which the bank forecasts will expand by 4.7% this year and 4.5% next. NBK predicts headline GDP growth will recover to 3.8% over the next two years.

Rising activity levels in the construction sector were key factors in increased lending by Bahrain’s banks, which posted 9.7% credit growth in the first quarter, more than three times the 2.9% growth recorded during the same period in 2017.

A major development in the construction phase is local company Aluminium Bahrain’s $3bn Line 6 smelter expansion.

Expected to come on-line in January next year, the new line will lift annual output by around 540,000 tonnes to 1.5m, and will see the company account for some 25% of the GCC’s aluminium production capacity, Tim Murray, the firm’s CEO, told OBG.

Oil finds and downstream upgrades bolster prospects
While non-oil sector developments have largely driven recent construction activity, the need for new infrastructure to support recent energy finds should also provide a fillip in the coming years.

Announced at the beginning of April, the finds in the Khaleej Al Bahrain basin amount to as much as 80bn barrels of oil and up to 20trn cu feet of gas, representing the country’s first major hydrocarbons discovery since 1932.

Although it is estimated that production will not begin before 2023 or later, construction work is required in the near term to install the necessary infrastructure and capacity to extract and process the reserves.

The construction sector is also expected to benefit from the ongoing $5bn modernisation programme undertaken by the national oil producer, Bahrain Petroleum Company (Bapco).

Due for completion in 2022, the plan aims to upgrade existing infrastructure, improve efficiency and lift processing capacity at the Sitra oil refinery from 267,000 barrels per day to 360,000.

The work associated with the rollout, combined with the energy finds, is encouraging domestic contractors to take on more staff and prepare for an extended period of increased activity, according to Issam Abu Hamad, executive director of construction and associated activities firm Mechanical Contracting and Services Company.

“We were already planning for three to four years of growth due to the Bapco modernisation programme, which we expected to be followed by a drop-off in work,” he told OBG. “However, with the new oil find announcement, this dynamic may change and could mean some more sustained long-term growth for Bahraini contractors.”

@Oxford Business Group, 31 JULY, 2018