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Aramco IPO, Saudi fiscal policy, Lebanese banks

A few more details of the Aramco IPO have trickled out in the last few days and we now know that 2% of the firm will be listed on the Tadawul on 11th December. The funds from the IPO wouldn’t be quite enough to fully finance the budget deficit over the next year and so won’t change the direction of fiscal policy. This was supported by the latest budget data and recent comments from government officials. Elsewhere, there are growing signs that policymakers in Lebanon are looking at ways of protecting the banking system in the event of a possible sovereign debt restructuring.
Jason Tuvey Senior Emerging Markets Economist
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Middle East Economics Weekly

World Bank food loans, OPEC, SAMA liquidity injection

Egypt and Tunisia received loans from the World Bank this week to help them face rising global food prices, but the loans will not cover all of the increase in imports and alleviate strains in balance sheets. Elsewhere, despite no decision being made at today’s meeting, OPEC+ could remove quotas from September. That would provide a major fillip to GDP growth in the Gulf economies over the next few years. And finally, the Saudi central bank injected funds into the local banking sector to ease liquidity concerns but more may be required in order to support strong credit growth.
EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.

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SAMA likely has more to do to ease liquidity concerns

Reports that the Saudi Central Bank (SAMA) has injected liquidity into the banking sector appears to be a consequence of a lack of FX intervention (despite high oil prices), tight fiscal policy and strong credit growth. SAMA appears keen to sustain robust lending growth, but that will probably require it to maintain its focus on providing liquidity to banks, rather than draining it, over the coming months. EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.

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Gulf a bright spot

We think that rising oil production and high global energy prices will result in rapid GDP growth this year and next across the Gulf economies. Growth is likely to be well above consensus expectations.

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Iran: nuclear deal, elections and the economy

Negotiators appear to be closing in on an agreement to revive Iran’s nuclear deal which, if revitalised, would provide a substantial lift to Iran’s economy – it could plausibly expand by 8-10% per year in 2021-23. Higher Iranian oil output would act as a drag on global oil prices and could prompt governments in the Gulf countries to keep fiscal policy tight, weighing on their recoveries.

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Emerging Europe Economics Weekly

Erdogan piles on the pressure, Israel’s surprise coalition

Talk this week of rate cuts in Turkey has led to further falls in the lira and, ironically, means that the central bank will stand pat at this month's MPC meeting. In Israel, the coalition proposal formed to topple incumbent PM Benjamin Netanyahu is so fractured we don't think it will lead to major changes in economic policy. Finally, the announcement by Russia's government to de-dollarise its National Wealth Fund assets won't have an economic impact, but it is a clear move ahead of the Biden-Putin summit this month that Russia sees its future as isolated from the West.

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Emerging Europe Data Response

Turkey Consumer Prices (May)

The latest falls in the lira mean that, despite the fall in Turkey’s headline inflation rate to 16.6% y/y last month, the central bank (CBRT)will probably leave interest rates unchanged at this month’s MPC meeting. But the CBRT is likely to fulfil the president’s desire for monetary loosening by August.

3 June 2021
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