Middle East

Kuwait

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 unrest, Kuwaiti government, Oman fuel prices

Escalating social unrest in Tunisia and opposition to fiscal reforms from the powerful UGTT labour union will make it more difficult for President Saied to push through much-needed fiscal reforms and further cements our view that the government will be forced to restructure its debts. Elsewhere, Kuwait’s government resigned (again) but hopes that this will pave the way for passing the long-awaited debt law may be overdone. And finally, Oman’s Sultan Haitham announced a cap to local fuel prices until the end of 2022 to quell rising inflationary pressures, although this may increase concerns about the government’s commitment to fiscal consolidation.

11 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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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.

Oil prices would still fall even if OPEC expands

In this Energy Watch, we discuss the future of OPEC and its role in the oil market. While we suspect that its membership may expand, we think that its ability to influence oil prices will fall over time and that oil prices in real terms will decline steadily over the coming decades.

Gulf and oil prices, Egypt remittances, PIF’s Call of Duty

The latest drop back in oil prices is unlikely to be of much concern to policymakers in the Gulf and we still think that there is a window of opportunity for fiscal policy to be loosened. Elsewhere, remittances into Egypt have held up well during the pandemic but this is unlikely to be enough to prevent falls in the pound. Finally, Saudi Arabia’s Public Investment Fund (PIF) raised its stake in a major US video game producer this week although foreign acquisitions may become rarer as the PIF heeds the call to support domestic projects.

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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