Qatar has taken the lead in bond issue, Oxford Economics said and noted other governments in the region could follow soon to “help finance the economic and fiscal shortfall” this year.

According to Oxford Economics, Qatar became the first Gulf country to test investor appetite amid the combined shock from oil and coronavirus, issuing $10bn in Eurobonds on April 7. The sale, split in tranches of five, 10 and 30 years, offered “attractive premium over existing bonds and saw high demand”.

Oxford Economics said, “With over 80% of government revenues coming from hydrocarbons, the slump in oil and gas prices poses a challenge for Qatar’s public finances, with the fiscal position seen turning negative this year even as spending is reduced.”

The transaction generated an aggregate order book peaking at approximately $45bn, which clearly reflects investor confidence in Qatar, one of the few ‘double-A rated’ economies in the world.

The $10bn Eurobond sale offered attractive premium over existing bonds and saw a huge demand from many investors from Asia, Europe, the US as well as the Middle East and North African (Mena) region.

Oxford Economics noted the Purchasing Managers' Index (PMI) in March painted a bleak picture for non-oil activity across the Middle East, registering record falls in most countries.

“With Covid-19 measures tightening further and oil prices at multi-year lows, we have made substantial downgrades to our growth forecasts for 2020, with GCC non-oil GDP now seen falling 2.4% (previously we expected growth of 0.2%),” Oxford Economics said.

The March PMIs (released last week) showed that tightening Covid-19 containment measures and the oil price slump were taking a heavy toll on non-oil industries across the Middle East. It said restrictive measures have been in place for several weeks in the GCC to contain the rise in Covid-19 cases, with recent forecasts suggesting substantial economic impacts across the region.

Oxford Economics said, “The GCC countries have already announced fiscal measures to counter the economic shock of the severe containment, which we expect will counter the shortfall in oil receipts at least in the short run.

“We expect the magnitude of these to be determined by the extent and length of the restrictions, as well as each country’s structural economic vulnerability to the outbreak.

“Containment measures have already strangled the Mena economy. We now see non-oil GDP growth, even in the GCC – the most resilient economies in the region – falling by 2.4%, with risks on the downside depending on any extension of the current lockdowns. Moreover, we expect second-order effects to depend on the structural resilience of the region.”

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