Financing the GCC’s fiscal deficits, which will reach $260bn and $135bn in 2016 and 2017 respectively, will be made more challenging by the need to refinance $94bn of corporate and government debt, according to a research report by UK lender HSBC.

Falling liquidity, ratings downgrades and rising borrowing costs compound the difficulty.

There are $610bn of foreign currency-denominated bonds and syndicated loans in the region, of which 15.4 per cent is due to be refinanced or repaid in 2016 and 2017. This includes UAE, Bahraini and Qatari sovereign debt, as well as corporate.

About half of this lending is focused on the banking sector, according to HSBC. Any rise in banks’ cost of borrowing would rapidly be felt by other borrowers as the financial sector maintains its margins.

This effect will be amplified by the de facto single credit market in the GCC, with liquidity tightening across the region.

The region’s governments are expected to run a combined fiscal deficit of 12.6 per cent of GDP in 2016, according to the Washington-based IMF. It will be financed by a mixture of drawdowns from sovereign wealth and local and international debt issuance.

This will push gross government debt in the GCC to 18.9 per cent of GDP this year, from a low of 9 per cent in 2014.

US-based Standard & Poor’s (S&P) downgraded Saudi Arabia’s, Oman’s and Bahrain’s ratings in February, while fellow US ratings agency Moody’s Investors Service also lowered its Oman rating.