Gulf Countries Explore Options for Deepening Domestic Debt Markets

  • Domestic debt issuance is relatively limited in Gulf Cooperation Council states
  • Issuing government debt has significant benefits, even for fiscal surplus countries
  • Access to long-term financing is key for diversification in Gulf countries
  • In the member countries of the Gulf Cooperation Council (GCC), domestic debt markets are still at an early stage of development compared with other regions. But policymakers across the GCC—and the Middle East region more broadly—are placing a strong emphasis on developing these markets based on a broader vision for an increasing role for the private sector in driving economic growth and diversification. In addition, planned social and physical infrastructure projects require significant long-term funding. Greater access to capital, in turn, requires a more strategic approach to capital market development.

    In an effort to strengthen its capital market infrastructure, Qatar will be establishing a domestic rating agency within a year, the Qatari central bank governor, Abdullah Al-Thani, announced at the conference, held on September 18–19.

    The conference, organized by the Qatar Central Bank in collaboration with the IMF and the Qatar General Secretariat of Development Planning, brought together representatives of central banks, governments, regulators, the academic community, and the private sector as well as international financial institutions.

    Benefits of financial deepening

    In a number of emerging market economies, local currency domestic debt markets are becoming increasingly important as an alternative source of funding. These markets are playing a growing role in providing finance to governments and corporations, and in reducing their dependence on the banking sector.

    Among others, “domestic debt markets create a conducive environment for encouraging investments,” Governor Al-Thani stated. In this context, “GCC governments need to develop government securities to set benchmarks for the private sector” according to the Governor of the Central Bank of the United Arab Emirates, Sultan Al-Suwaidi. Central Bank of Oman Executive President Hamood Zadjali added that “GCC countries cannot continue to finance high-cost development projects through budgets, given that revenues are dependent on volatile oil prices.”

    Across the GCC—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—the financial sector is generally dominated by the banking sector, which is highly concentrated...

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