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Middle East Economics Weekly

Middle East Economics Weekly

OPEC+ policy, Egypt’s orthodox shift and FY22/23 budget

Next Thursday's OPEC+ meeting may drop some hints about the future for the group's oil output beyond September and we think that quotas are likely to be lifted. If that’s the case, the Gulf economies would be major beneficiaries. Elsewhere, comments from Egypt’s finance minister suggest that officials are becoming more receptive to a weaker pound, adding to hopes that the move to a more flexible exchange rate is the real deal. A weak currency is a concern given the growing sovereign FX debt burden, but the country’s FY2022/23 budget passed this week does at least highlight a commitment to fiscal austerity.

23 June 2022

Middle East Economics Weekly

Fed hikes, Egypt’s policymaking, Egypt-Israel-EU gas deal

Central banks in the Gulf followed the Fed in hiking interest rates and further tightening lies in store. But there are reasons to think that the region’s economies will be relatively unscathed by this. The likes of Tunisia and Egypt are more much more vulnerable to global monetary tightening. That said, after devaluing the pound in March, Egyptian policymakers seem to have moved to a more flexible exchange rate regime that will help to absorb strains in the balance of payments. Meanwhile, the EU signed a tripartite gas deal with Egypt and Israel this week that should provide a boost to Egypt’s energy sector over the coming years. World with Higher Rates - Drop-In (21st June, 10:00 ET/15:00 BST): Does monetary policy tightening automatically mean recession? Are EMs vulnerable? How will financial market returns be affected? Join our special 20-minute briefing to find out what higher rates mean for macro and markets. Register now

16 June 2022

Middle East Economics Weekly

OPEC+ fallout, PMIs, Tunisia austerity plans

Last week’s decision by OPEC+ to accelerate the pace at which it is raising its oil production quota will provide a fillip to economic growth in Saudi Arabia and the UAE. Meanwhile, May’s batch of PMIs further highlighted the growing divergence between the Gulf and non-Gulf economies. And finally, an austerity plan announced by Tunisia’s government this week may appease the IMF ahead of talks over a financing package, but passing such measures will be extremely difficult and ultimately Tunisia will continue on the path toward default.

9 June 2022
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Middle East Economics Weekly

OPEC+ talks, strike in Tunisia, Egypt’s bread subsidies

Reports that OPEC+ may suspend Russia from its oil output deal reinforce our view that the Gulf states will raise production faster later this year. Meanwhile, Tunisia’s largest trade union called this week for a national strike in response to government proposals for cuts to the public sector wage bill, underlining that pushing through fiscal tightening will prove difficult and a sovereign default is almost inevitable. And in Egypt, plans to overhaul bread subsidies have been shelved which will require spending to be restrained in other areas to keep the public finances on a sustainable footing.
We are sending this Weekly one day earlier than usual because Capital Economics’ London office is closed on 2nd-3rd June for the Queen’s Platinum Jubilee celebrations.

Middle East Economics Weekly

Saudi fiscal policy, the IMF in Tunisia and Egypt

Saudi Arabia’s Finance Minister Mohammed al-Jadaan provided hints in comments this week that the fiscal purse strings could soon be loosened if oil prices remain elevated. Elsewhere, officials in Tunisia and Egypt confirmed that talks with the IMF over new lending arrangements are due to get underway soon. Egypt is better placed to secure a deal (if it wants one), but the same cannot be said for Tunisia where President Saied’s growing unpopularity will make passing reforms even more difficult.

Middle East Economics Weekly

Tunisia rate hike, Saudi budget data, Egypt privatisations

Tunisia’s central bank hiked interest rates this week with policymakers almost certainly having one eye on the country’s fragile external position. But we do not think that this will prevent sharp falls in the dinar and, in turn, a sovereign default. Elsewhere, Saudi Arabia posted its largest budget surplus since 2013 in Q1 on the back of high oil prices and continued tight fiscal policy. If oil prices remain high, though, the proverbial purse strings are likely to be loosened, supporting activity in the non-oil sector. Finally, more details emerged of Egypt’s forthcoming privatisation drive with the government planning to remove itself from a whole swathe of sectors.

Middle East Economics Weekly

Egypt’s budget, UAE welfare, Lebanon election

Egypt’s draft budget reiterated the government’s commitment to keeping fiscal policy tight but, with debt servicing costs rising sharply and the currency set to weaken, there are increasing concerns over Egypt’s debt dynamics. Elsewhere, the UAE unveiled an unemployment insurance scheme this week that will benefit both Emiratis and non-Emiratis as officials seek to ward off competition for the country's role as the region's financial and trading hub. Finally, elections in Lebanon this weekend are unlikely to provide fresh impetus to efforts to secure IMF financing. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.  

Middle East Economics Weekly

OPEC+ and the Russian oil embargo, GCC follows Fed

The EU’s plans to phase out imports of Russian oil would increase the chances that the Gulf economies raise oil output more quickly. This would provide a significant fillip to economic recoveries this year. Meanwhile, by virtue of their dollar pegs, central banks in the Gulf followed the US Fed in raising interest rates and will have to continue tightening. Even so, with oil prices very high, it seems more likely that credit growth in the region will strengthen.
EM Drop-In (5th May, 10:00 EDT/15:00 BST): Join Shilan Shah for our latest monthly session on the big macro and markets stories in EMs. This month, Shilan and the team will be talking Russian gas, FX weakness and surging food prices. Register now

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