When government budgets are squeezed, thoughts naturally turn to alternative sources of finance. Private finance for infrastructure through banks and bonds has risen back up the agenda in the Middle East and North Africa, in a bid to shore up projects markets.

There are two drawbacks to this approach. The first is that public-private partnership (PPP) projects are, overall, more costly and time-consuming. This actually means priority projects during a downturn are not necessarily suitable candidates for PPP.

Secondly, there is a high correlation between GCC governments’ fiscal positions and their banking sectors’ liquidity levels. Government deposits make up an important, cheap source of funding for domestic banks, and withdrawals are beginning across the GCC. An increase in public borrowing may also crowd out the private sector.

With banks forced to tap markets for increasingly expensive funding and showing more cautious behaviour on lending, this is the worst time to seek finance in the GCC in years.

Kuwait, which has experienced years of delays and reversals in setting up a PPP framework, is the exception. The government spent low for years, failing to carry out vital infrastructure projects, while public reserves and banking sector liquidity built up. This is all set to change in 2016, and the market is expected to overtake Saudi Arabia as the most active project finance market in the region.

Egypt promises to be another active market for project finance, but is more likely to fail to deliver. The country’s banking sector is weighed down by government debt, and has only limited capacity to finance megaprojects. International investors and lenders are still waiting to hear details of solutions to Egypt’s currency convertibility challenges before they commit.

Projects markets are expecting high levels of support from the financial sector. The reality may disappoint.