In light of the Corona pandemic, Arab countries resorted to obtaining more loans and issuing debt bonds in order to alleviate their economic crises, but these debts will, in fact, double the burdens.
The Economist, a British magazine, says in a report that, since last May, foreigners have invested more than $ 10 billion in domestic government debt instruments put forward by the Egyptian Ministry of Finance, in a completely opposite direction to what happened in the early days of the spread. The "Covid-19" epidemic.
The same applies to all Arab countries, as the countries of the Gulf Cooperation Council issued government debt bonds and corporate bonds worth $ 100 billion in the first ten months of this year, and in Tunisia, the Central Bank rejected government plans to buy treasury bonds with the aim of reviving the economy and helping local investors.
Record debt rates
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 next year, public debt rates in many Arab countries will be at their highest levels in two decades.
In the 11 countries that export oil and gas in the region, the volume of debt reached about 25% of GDP between 2000 and 2016, and the International Monetary Fund expects the ratio to reach 47% next year.
In the Kingdom of Saudi Arabia, the debt-to-GDP ratio is expected to reach 34%, after it was 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 it is expected that the debt ratio will reach 131% next year, compared to 89% in Oman.
The outlook appears negative for the Gulf states, especially as the new closures in Europe and the United States led to a drop in oil prices in October.
Egypt received a $ 5.2 billion loan from the International Monetary Fund due to the Corona pandemic (Reuters)
Corona exacerbates the crisis
The spread of the Corona virus has spoiled the course of financial reforms that have been taken by a number of countries in the region in recent years. In Egypt, for example, in 2016 the government had reached an agreement with the International Monetary Fund to obtain a loan of $ 12 billion, which forced it to Reducing subsidies and imposing a value-added tax, which led to a decrease in the deficit from 11% of GDP in 2016 to 7% last year.
Egypt was on its way 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 dollars, and it is expected that its debts will rise next year to reach 91% of GDP, It is followed by Jordan, at 89%, and Tunisia, at 86%.
For now, at least, investors appear enthusiastic about Egypt's sovereign debt, returns are high and Abdel Fattah El-Sisi's authoritarian rule has removed fears of political unrest in the country.
But the situation remains subject to change at any moment, according to the magazine, which happened specifically between the months of March and May, when at least $ 12.7 billion flowed out of the country.
The magazine clarifies that borrowing does not, in fact, yield significant benefits to the economies of Arab countries.
In Kuwait, for example, more than 70% of the state budget goes to 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 GDP for aid, which is less than the 3% allocated by emerging markets.
According to the magazine, borrowing helped Arab countries to relatively overcome the current crisis, but in return it exacerbated some problems, as Egypt spent an estimated 9% of GDP on debt servicing.
With the continued decline in oil prices, and the faltering of vital sectors such as tourism, the Economist believes that the new debts will constitute an additional burden on Arab governments and limit their ability to overcome the economic recession.