GCC Governments Borrowing
The international financial markets are the most important drivers of economic activity in light of the increased inflows of funds across national boundaries, which in turn raises the awareness of governments, societies, firms and individuals to maximize advantages presented to them by economic integration ( a term now known as globalization). Globalization also poses real risks as decision-makers in governments and businesses have to deal with an ever-more complex economic environment.
Furthermore, more complete and liquid international financial markets, including both debt and equity markets are allowing investors, savers, producers and traders to better manage the risks related to interest rate or cost of borrowing as well as the associated movements in exchange rate of the currencies being borrowed or lent.
In this context, many governments in the world, including the GCC governments, have already started to borrow from the international markets by issuing bonds to finance, for example, their infrastructure projects, or to implement projects, which help in diversifying their economies, etc. There are many alternatives available for these governments to borrow. Given this background, please answer the following questions:
Describe the main alternative sources of financing available to the GCC governments to finance their projects? Should they borrow domestically or internationally? What are the main drivers that affect their choice for global markets?
What are the main factors that affect their borrowings? In other words, do you think the economic, cultural, legal and demographic facts are the sole factors that shape the decision- making process?
Analyze and show how each of the factors raised in the previous question will affect government financing decisions.
Based on your analysis of the factors that affect borrowing from the international markets, do you find the globalization of financial markets has played big role on the undertaken decision in the context of GCC countries case?
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