Middle East

Middle East Chart Book

Middle East Chart Book

Gulf governments to keep fiscal policy tight

Governments across the Gulf have begun to unveil their 2022 budgets and tight fiscal policy remains the order of the day. Saudi Arabia outlined a 6% cut in spending next year that is expected to push the budget into surplus for the first since 2013. And while Oman and Qatar both project small increases in expenditure in 2022, these are set to be more than offset by stronger revenues. The emergence of the Omicron variant has weighed on oil prices in recent weeks and, if we’re right in expecting them to fall further next year, the window that had opened up to loosen the purse strings will close. Tight fiscal policy will hold back recoveries in non-oil sectors, and we suspect that Oman and Bahrain will have to rely on financial assistance from the rest of the Gulf to avoid devaluations and defaults.

15 December 2021

Middle East Chart Book

MENA and the Omicron risks

The Middle East and North African economies are potentially among the most vulnerable to the fallout from the Omicron strain of COVID-19. The North African economies as well as Lebanon and Jordan have low vaccination rates and large tourism sectors, leaving them exposed to the risk of tighter restrictions and curbs on international travel. In the Gulf, vaccination rates are much higher and, Dubai aside, tourism sectors are relatively small. But the fall in energy prices could prompt governments to hold off loosening fiscal policy. And producers may raise oil output more slowly, which would weigh on economic growth.

30 November 2021

Middle East Chart Book

What do higher oil prices mean outside of the Gulf?

The Gulf countries will be among the biggest winners globally from the recent rally in energy prices but most other parts of the Middle East and North Africa are net oil importers and are likely to be negatively affected. Higher energy prices will push up inflation or, in those countries with subsidy systems, add to pressures on public finances. Meanwhile, all else being equal, current account deficits could widen by an average of nearly 2%-pts of GDP next year if oil were to remain at $85pb. This could lead to downward pressure on currencies and make it more costly to service external debts – this could prove to be the most damaging in Tunisia and force the government to default on its debts.

27 October 2021
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Middle East Chart Book

Rise in inflation to prove short-lived

Inflation in many economies in the region has risen to multi-year highs in recent months. In general, this has been driven higher by a combination of unfavourable base effects from the pandemic, as well as some re-opening inflation and the effects of rising global commodity prices. In Oman, those effects have been compounded by the introduction of VAT in April. Most of the drivers appear to be transient and inflation is likely to slow again over 2022-23 and, in Egypt, this is likely to bring interest rate cuts back on to the agenda. One key exception is Lebanon, where inflation is already running at over 100% and will remain elevated amid the effects of the collapse in the pound and the repeal of subsidies.

Middle East Chart Book

Gulf countries move to lift containment measures

High levels of vaccine coverage have paved the way for policymakers across the Gulf to lift measures to contain COVID-19 over the past month or so. The UAE remains ahead of the pack in the vaccine race and has started to deliver booster jabs in recent weeks. Vaccine rollouts elsewhere in the Gulf have gathered pace and most countries have now inoculated upwards of 60 out every 100 people with at least one dose. Easing restrictions, coming alongside rising oil production and higher oil prices providing scope for fiscal policy to be loosened, means that economic recoveries in the Gulf are likely to gather pace over the rest of this year and into 2022.

Middle East Chart Book

OPEC+ agreement provides a boost to Gulf recoveries

The end of the impasse within OPEC+ this month will result in higher oil output and boost recoveries in the Gulf over the second half of this year and in 2022. Output quotas will rise by 400,000bpd each month after the UAE backed down in return for having its baseline production raised from next year. More supply on the market is likely to weigh on oil prices, but we think that the impact on Gulf oil export revenues will be more than offset by rising production volumes. As a result, budget and account positions in the Gulf will improve, providing policymakers with a small window to loosen fiscal policy and support recoveries in the region’s non-oil sectors.

Middle East Chart Book

Higher oil prices to help narrow twin deficits

The price of oil has continued to rise and will help to improve balance sheets in the Gulf. With oil prices at $75pb, all Gulf economies with the exceptions of Bahrain and Oman are likely to be running current account surpluses, having run deficits in 2020. Budget deficits will have narrowed too and this may open the door to looser fiscal policy. Indeed, there have been signs recently that policymakers in Kuwait, Oman and Saudi Arabia are moving in this direction. However, we expect that the price of oil will fall later in the year, meaning that the window to raise spending may be limited.

Middle East Chart Book

Inflation edges higher

Headline inflation rates have increased in almost all countries in the region since the turn of the year reflecting a combination of price pressures as economies re-open, higher food inflation and tax changes, as well as unfavourable base effects created by last year’s slump in global energy prices. The largest increases have been recorded in Qatar, due to stronger energy and services prices, and Oman, due to the recent introduction of VAT. Inflation in Lebanon remains in triple digits and may rise further if subsidies are scrapped and the pound continues to come under pressure on the black market.

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