Kuwait: Bond investors across the globe have been left high and dry over the past few years driven by ultra-low interest rates,” according to Marmore MENA Intelligence, a subsidiary of Kuwait Financial Centre “Markaz.”
“The current scenario is a result of the consorted efforts by Central banks around the world to pump in low cost money in order to invigorate their respective economies. After a long hiatus the Fed has decided to increase rates very gradually in the US starting second half of 2016, however other important markets such as the UK, Eurozone and Japan continue to have abysmally low levels of bond yields. This has created a dearth of investment opportunities for bond investors. Only recently has there been a talk of Eurozone economies ending their QE program in the second half of 2018.The desperation to invest in better yielding quality papers has wooed investors towards the emerging bond markets of the GCC.
GCC governments have been active in setting up Debt Management Offices (DMO) in order to better understand and service their debt obligations. Hitherto, the role of issuing debt, servicing them and repaying them were all taken care of by the respective central banks. While that might have worked when the debt was minimal, a specialist DMO is required in order to manage them by establishing a separate, independent entity that is in charge of the debt management to avoid the burden on the central banks. GCC countries have established a Debt Management Office (DMO) that is independent but act according to the limits set by the finance ministry.
Looking ahead, GCC countries’ ambitious spending plans ensure a continued need for bond issuance. The GCC faces high infrastructure project spending requirements at USD 120-150bn annually (including transport-related projects) over the next two years. Saudi Arabia’s ‘Vision 2030’ program has huge infrastructure needs, but there are also sizeable infrastructure projects taking place in Qatar in relation to the 2022 football World Cup, as well as those relating to the Dubai Expo 2020, whilst other GCC countries such as Bahrain are looking to promote infrastructure as a way to boost economic growth.
