Middle East

Bahrain

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

Where are frontier sovereign debt risks greatest?

The precipitous decline in Sri Lanka’s foreign exchange reserves means the risk of a near-term sovereign debt default is increasing. Elsewhere, Tunisia also stands out on account of its public debt problems. Fiscal challenges look severe in Ghana, Oman and Bahrain, although crunch points are a few years away.

11 November 2021

Bahrain & Oman: austerity and Gulf help needed

The rally in oil prices has opened the door for some of the larger Gulf economies to loosen fiscal policy, but governments in Bahrain and Oman will need to continue tightening to repair their dire balance sheets. Even with further fiscal consolidation, we think that both countries will need to turn back to the rest of the Gulf for further financial support to help service their large external debts and keep dollar pegs intact.

3 November 2021
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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.

What does the energy price surge mean for the Gulf?

Higher oil and gas revenues are likely to prompt a modest shift to looser fiscal policy in the large Gulf economies, although Bahrain and Oman will still need to stick to austerity. Meanwhile, if OPEC+ were to raise production quotas more quickly in response to the surge in global energy prices, that would pose a major upside risk to our above-consensus GDP growth forecasts.

Gulf to outperform

Economic recoveries in the Gulf will continue to gather pace over the coming year on the back of successful vaccine rollouts and higher oil output, and our GDP growth forecasts lie above the consensus. Outside the Gulf, though, recoveries are likely to be slower, particularly in the more tourism-dependent economies. We think a sovereign default in Tunisia is more likely than not, and we have long-standing worries about public debt in Bahrain and Oman as well as Dubai’s corporate debts.

China’s long-term property decline: the fallout for EMs

Irrespective of how the current problems in China’s property sector are resolved, property construction there is entering a period of structural decline. Among other EMs, the main effects will be felt in metals producers in Latin America and Africa, adding to reasons to expect weak long-term growth in countries such as Brazil and South Africa. In view of the wider interest, we have made this Emerging Markets Update available to clients of our Long Run Service

Oil rallies, Bahrain VAT hike, Tunisia gets a new PM

The price of oil hit its highest level in nearly three years this week and, combined with rising oil output, will help support an improvement in budget and current account positions in the Gulf. This could open the door for some governments to loosen fiscal policy. Bahrain looks set to be an exception and tighten policy by doubling the rate of VAT. Elsewhere, Tunisia’s President Kais Saied unveiled his prime minister nearly two months after his power grab. Even if a new government is formed soon, there is growing concern that addressing Tunisia’s poor public finances is not on the agenda.

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