Market analysis: Euro offers alternative for region’s debt needs
Euro offers alternative for region’s debt needs: analysis by Richad Soundardjee, CEO, Middle East
The US dollar peg has symbolically been an anchor of the GCC’s recent economic history. Oil, which is priced in dollars, has been its main export and, as a result, the US currency has come to define the region’s trade relationships and forged proximity with the US.
With the sustained drop in oil prices probably ushering in a new paradigm of structural change, rather than a short-term bump in the road, debt is becoming an essential element of GCC governments’ economic policies. While all financing at the sovereign level has so far been in US dollars, there is a growing case for sovereigns, sovereign-related entities and high-rated corporates to begin considering the euro as an alternative.
The main case for euro funding is that the demand for financing has grown and is still growing significantly, making diversification away from US dollars into alternative sources of funding a prudent measure.