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In light of the Corona pandemic, Arab countries have resorted to securing more loans and issuing debt bonds in order to ease their economic crises, but those debts will actually double the burden.
The Economist magazine says in a report that since last May foreigners have invested more than $ 10 billion in national government debt securities offered by the Egyptian finance ministry, in a direction completely opposite to what has happened. spent in the early days of the spread. The “Covid-19” epidemic.
The same is true for all Arab countries, as the Gulf Cooperation Council countries issued government bonds and corporate bonds worth $ 100 billion in the first ten months of this year. year, and in Tunisia, the Central Bank rejected government plans to buy treasury bills in an attempt to revive the economy and help local investors.
Record debt ratios
Even before the outbreak of the pandemic, Arab countries had resorted to borrowing to cope with low oil prices and economic stagnation, and the spread of the epidemic exacerbated the situation, and by the year next, the public debt ratios of many Arab countries will be at their highest level in two decades.
In the region’s 11 oil and gas-exporting countries, debt volumes reached around 25 percent of GDP between 2000 and 2016, and the International Monetary Fund predicts that ratio will rise to 47 percent next year.
In the Kingdom of Saudi Arabia, the debt-to-GDP ratio is expected to reach 34%, after being estimated at 17% in 2017, and debt levels in Kuwait and the United Arab Emirates are expected to reach 37% and 38%.
According to the magazine, the situation will be more dangerous in Bahrain, as the debt ratio is expected to reach 131% next year, compared to 89% in Oman.
The outlook appears negative for the Gulf States, especially as further closures in Europe and the United States of America pushed oil prices down in October.
Egypt received $ 5.2 billion loan from International Monetary Fund due to Corona pandemic (Reuters)Corona exacerbates the crisis
The spread of the Corona virus has spoiled the course of financial reforms undertaken by several countries in the region in recent years. In Egypt, for example, in 2016, the government struck a deal with the International Monetary Fund to secure a $ 12 billion loan, which forced it to cut subsidies and impose a value-added tax, which which led to a decrease in the deficit from 11% of GDP in 2016 to 7% last year.
Egypt was on track to reduce the public debt ratio to 79% in 2021, but the epidemic forced it to obtain a new loan from the International Monetary Fund worth $ 5.2 billion, and its debt is expected to increase next year to reach 91% of GDP. It is followed by Jordan, at 89%, and Tunisia, at 86%.
For now, at least, investors seem excited about Egypt’s sovereign debt, yields are high, and Abdel Fattah El-Sisi’s authoritarian rule has allayed fears of political unrest in the country.
But the situation remains subject to change at any time, according to the magazine, which happened specifically between the months of March and May, when as much as $ 12.7 billion came out of the country.
The magazine specifies that the loan does not, in fact, bring significant benefits to the economies of Arab countries. In Kuwait, for example, more than 70% of the state budget is spent on salaries and allowances in the public sector.
Arab countries were also not generous in spending on stimulus measures during the Corona pandemic and allocated 2% of their GDP to aid, which is less than the 3% allocated by emerging markets.
According to the magazine, the loans have helped Arab countries relatively overcome the current crisis, but in return they have exacerbated some problems, with Egypt spending around 9% of its GDP on debt servicing.
With the continued decline in oil prices and the collapse of vital sectors such as tourism, The Economist believes that the new debts will place an additional burden on Arab governments and limit their ability to weather the economic recession.
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