By Sayed A., Chief Business Officer – Graystone Capital.
For most of the past two years, Gulf businesses planned on one assumption: money would keep getting cheaper. That assumption ended on 16 September 2026, when the US Federal Reserve raised its benchmark rate by a quarter point to 3.75-4.00%, its first increase since 2023.
Within a day, five GCC central banks followed. The UAE lifted its base rate to 3.90%. Saudi Arabia, Oman and Bahrain each took their key rates to 4.50%, and Qatar raised its rates by the same quarter point. Kuwait, which manages its currency against a basket, held steady.
Because most Gulf currencies are pegged to the dollar, the region imports US monetary policy almost automatically. With further Fed meetings on 27-28 October and 8-9 December, Gulf companies now need to plan for borrowing costs that may stay higher for longer. That changes the arithmetic behind every expansion decision.
How borrowing costs shape investment decisions
Every investment a company makes is a bet that the project will earn more than the money costs. When borrowing costs rise, the hurdle a project must clear rises with them.
Consider a simple example. A company is weighing an AED 80 million expansion expected to generate AED 12 million a year for ten years. If its cost of capital is 7%, the project creates about AED 4.3 million of value. If its cost of capital rises to 9%, the same project, with the same cash flows, destroys about AED 3 million of value. Nothing about the factory, the customers or the management has changed. Only the price of money has.
This is why rising rates slow investment even in strong economies. Projects that made sense on paper a year ago are being delayed, scaled back or cancelled, not because demand has disappeared, but because the numbers no longer work.
The effect also runs through existing debt. Most corporate borrowing in the Gulf is priced on floating benchmarks such as EIBOR and SAIBOR. In the UAE, three-month EIBOR stood at about 4.34% at the start of October, up from 4.00% a year earlier. On an AED 50 million floating-rate facility, each further quarter-point adds roughly AED 125,000 a year in interest. That money comes straight out of the cash that would otherwise fund growth, hiring or dividends.
Lenders are becoming more selective
The cost of borrowing is only half the story. Access to credit matters just as much.
The UAE Central Bank’s latest Credit Sentiment Survey showed banks’ appetite to lend to businesses turning negative in the second quarter, with tighter collateral requirements, smaller credit lines and higher rejection rates. Small and medium-sized enterprises felt this most.
In Saudi Arabia, banks have been lending more than they take in as deposits for some time, with loan-to-deposit ratios estimated at above 100%. Several large lenders have trimmed their 2026 loan growth targets and are now prioritising returns over volume. For borrowers, that means more scrutiny, more questions and more competition for each riyal of credit.
The broader backdrop adds to the caution. The IMF this week cut its 2026 growth forecasts for the Gulf, citing disruption to shipping through the Strait of Hormuz, while projecting a strong rebound in 2027. Lenders price that uncertainty into every facility they approve.
The financing landscape is widening
The good news is that GCC companies have more options than ever before.
Debt capital markets remain open. GCC bond and sukuk issuance reached about USD 102.7 billion in the first half of 2026, up 6.5% year on year, and total GCC debt outstanding has passed USD 1.2 trillion. Sukuk now make up a growing share of that market, giving companies a Shariah-compliant route to long-term funding.
Private credit is also growing quickly. Private lenders deployed more than USD 4 billion in the GCC last year, a record, and they are filling a real gap. SMEs receive less than 10% of total bank lending in the region, compared with about 20% in developed economies. Private credit funds offer flexibility that banks often cannot, including tailored repayment schedules, non-standard security and faster decisions, though usually at a higher price.
Five ways GCC businesses should rethink their financing
- Know your floating exposure. Map every facility, its benchmark and its repricing date. Many companies are surprised by how much of their debt resets within twelve months.
- Stress-test the plan. Model what a further half-point or full-point rise would do to interest cover and covenants. A plan that only works at today’s rates is not a plan.
- Rebalance fixed and floating. Where it makes economic sense, fixing part of the debt, or hedging it with interest or profit rate swaps, can bring certainty to cash flows.
- Diversify funding sources. Relying on a single bank leaves little room to negotiate. A mix of bank lines, sukuk or bonds, private credit and, where appropriate, equity gives companies resilience and bargaining power.
- Refinance early and prepare well. Facilities maturing in the next 12 to 18 months should be addressed now, not in the final quarter. Lenders reward borrowers who arrive with clean financial statements, clear projections and a credible plan.
Discipline is the new advantage
Higher borrowing costs are not a reason for Gulf businesses to stop growing. The region’s long-term fundamentals, including strong public finances, ambitious national visions and deep pools of regional capital, remain firmly in place.
What has changed is the margin for error. In an era of cheap money, almost any expansion looked affordable. In today’s environment, the winners will be the companies that treat capital as a scarce resource: they borrow deliberately, structure carefully and plan ahead.
The cost of capital has gone up. The value of good financing strategy has gone up even more.
