Middle East

Jordan

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

Tunisia fiscal policy, Egypt’s private sector, COVID-19

Tunisia’s government upwardly revised its 2021 budget deficit target this week which, coupled with growing signs of it making concessions to appease the UGTT labour union, adds to our view that the public finances will continue to deteriorate and a debt restructuring will be needed. Elsewhere, Egypt government announced plans to scale back its involvement in the economy. While encouraging, there are reasons to be sceptical. And finally, COVID-19 vaccine rollouts in parts of North Africa have picked up the pace and the news of the development of an antiviral pill will provide countries with a further tool to add to the arsenal.

18 November 2021

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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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.

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.

Jordan’s public finances a cause for concern

Jordan’s public finances deteriorated sharply last year and fiscal consolidation is needed to put the debt position back on a sustainable footing. Sticking to austerity may prove difficult given the economic and political backdrop and the composition of Jordan’s debt is also a cause for concern. But the likelihood of financial support from the Gulf and Western allies mitigates the near-term risk of default.

15 September 2021

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.

A two-speed recovery

Strong COVID-19 vaccine rollouts in most of the Gulf and Morocco mean that remaining virus restrictions should be lifted by the end of this year, providing a boost to recoveries that, in the Gulf, will be turbo-charged by the recent OPEC+ deal to raise oil output. Elsewhere, though, vaccination programmes are progressing more slowly and fresh virus outbreaks will remain a key threat to the outlook. At the same time, many of these economies will suffer as international tourists return only slowly and officials turn back to fiscal consolidation in order to address high public debt-to-GDP ratios.

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