Borrowing by Middle East and Northern African (Mena) sovereigns from commercial sources is expected to slow down in 2017 after sharply increasing last year as most of the oil rich states sought to raise funds from debt market to bridge their fiscal deficits.

“This is on the back of fiscal consolidation implemented by all GCC countries, including Saudi Arabia, the largest Mena issuer in 2016,” S&P Global Ratings credit analyst Trevor Cullinan said in a latest report, adding that the modest recovery in oil prices since the fourth quarter of 2016, means net oil exporters’ government financing needs are likely to fall compared with last year.

“We project that the 13 Mena sovereigns we rate will borrow an equivalent of $136bn from long-term commercial sources in 2017. This represents a 20 per cent decline – $34bn in long-term commercial debt issuance,” according to Cullinan.

S&P estimates that $28bn, which represents about 20 per cent of Mena sovereigns’ gross borrowing will be used to refinance maturing long-term debt in 2017, compared with $24bn in 2016, resulting in an estimated net borrowing requirement of $108bn. As a consequence, S&P projects that Mena sovereigns’ commercial debt stock will reach $720bn by end-2017, a 19 per cent increase from 2016.

However, adding the bilateral and multilateral debt, the total stock will reach $821bn, a year-on-year increase of $135bn. The share of non-commercial official debt, both bilateral and multilateral in total sovereign debt is set to rise to 14 per cent of total debt as of year-end 2017.

“We expect that outstanding short-term commercial debt – debt with an original maturity of less than one year – will reach $106bn at year-end 2017,” Cullinan said in the report.

S&P said that the commercial sovereign debt stock rated in the ‘AA’ category , which includes Abu Dhabi, Kuwait, and Qatar will be 16 per cent of the total borrowing this year, up from 8 per cent in the rating agency’s 2016 survey. The share of ‘A’ category debt, which includes Ras al-Khaimah and Saudi Arabia, will rise to about 17 per cent up from 9 per cent in 2016). The main driver of the increase will be Saudi Arabia’s large government borrowing requirement.

Due to the rise in debt issuance by higher rated sovereigns, the share of commercial debt in the ‘BBB’ category or below has fallen to about 67 per cent of the total, down from 83 per cent at the time of the 2016 survey. Egypt accounts for 25 per cent and Iraq 10 per cent of the commercial debt stock, which S&P expects will be in place by the end of 2017.

“We calculate that Egypt will face the highest debt rollover ratio (including short-term debt) among rated Mena sovereigns, reaching 29 per cent of GDP, followed by Lebanon at 28 per cent and Bahrain 23 per cent,” according to the report.