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Middle East


Pockets of public debt vulnerability

Tighter global monetary conditions and spillovers from the war in Ukraine have caused public debt problems to worsen in several emerging markets, and the MENA region is not immune to this. Within the region, Tunisia’s public debt position is most fragile and the government now faces a ballooning subsidy bill. We think that a debt restructuring will ultimately needed. Elsewhere, the devaluation of the Egyptian pound has coincided with concerns about the growing share of public debt that is denominated in FX. Of course, in the Gulf, high energy prices will provide a significant boost to public finances this year. We’re more concerned about private sector debts, particularly in Dubai. With the Dubai World Expo now over, there’s a growing risk of overcapacity in key sectors that could make debt servicing more difficult.

28 April 2022

Oman's income tax, Egypt privatisation drive

Reports over the past week suggest that, despite the boost to the public finances from high oil prices, Oman’s government is sticking to fiscal tightening with the likely introduction of a personal income tax in 2023. Elsewhere, President Al-Sisi outlined fresh details of Egypt’s privatisation drive with plans to list some military-owned firms on the local stock market. But, on past form at least, privatisation drives have floundered and it is not clear whether this time will be any different.

28 April 2022

Gulf leads the way as Ukraine war drives divergence

The Gulf economies will be major beneficiaries from higher energy prices and our growth forecasts sit far above the consensus. Outside the Gulf, higher inflation and tighter fiscal policy will weigh on growth, while balance sheet problems are likely to build. In Egypt, despite the recent devaluation, we think the currency will need to weaken further in order to stabilise the external position. One consequence is that interest rates will be raised – and by more than most expect. Elsewhere, we think that Tunisia’s government will ultimately turn to default.

25 April 2022
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External strains building in North Africa

The Gulf stands to benefit from the war in Ukraine. Oil output is likely to be raised more quickly, while higher energy prices will boost export revenues by around 10% of GDP this year, providing some scope for fiscal loosening. In contrast, most of the non-Gulf economies will see current account positions deteriorate. Egypt responded to these strains by (finally) devaluing the pound this month, while Tunisia is facing growing pressure on its currency, which makes a sovereign default increasingly likely.

A busy week in Egypt, Oman loosens the purse strings

Policy announcements in Egypt this week, including a devaluation of the pound, have been pinned on the spill-overs from the war in Ukraine, but they have actually been some time in the making and may be paving the way for a fresh IMF deal. Elsewhere, Oman’s government announced an increase to spending this year as it takes advantage of higher oil prices. Other Gulf economies are likely to make a similar moves in the coming months, which will boost recoveries in their non-oil sectors.

Regional divergence to widen on back of Ukraine war

The spillovers from the war in Ukraine will further drive divergence in economic growth across the Middle East and North Africa. The Gulf economies stand to benefit as oil production is likely to be raised more quickly which, combined with higher oil prices, will probably prompt some governments to loosen fiscal policy. Outside the Gulf, however, higher commodity prices will push up inflation and policymakers will probably have to step up fiscal consolidation efforts. Commodities Drop-In (24 March, 11:00 EDT/15:00 GMT): Our Commodities team will be exploring how the war in Ukraine is shaking up commodity markets, from oil to wheat, while tackling some of the big market questions – not least whether we’re in for 1970s-style oil supply shocks. Register here.

Energy markets present upside risk to the Gulf

The Gulf economies are key beneficiaries from the rise in energy prices caused by the Russia-Ukraine crisis. On an annualised basis, oil at $100pb would increase hydrocarbon export revenues by 7-10%-pts of GDP across the Gulf (relative to 2021). This could open the door for officials to loosen fiscal policy and support non-oil sector recoveries. Meanwhile, we think that OPEC+ will stay the course and raise its production quota by 400,000bpd on Wednesday, which will further benefit the Gulf as higher oil output will strengthen GDP via higher mining output. If anything, global energy prices are likely to rise further if the conflict continues to escalate and the Gulf producers may ramp up output more quickly to stabilise the oil market. These present upside risks to our GDP growth forecasts across the region. EM Drop-In (Thur. 3 March, 15:00 GMT): We’re discussing the impact of Russia-Ukraine on emerging markets in a special 20-minute briefing this Thursday. Registration details.

What does oil at $90pb mean for the Gulf?

With oil prices at current levels, nearly all of the Gulf economies are running twin budget and current account surpluses. We think that governments are more likely to save rather than spend this windfall, limiting the impact on the region's non-oil sectors and broader GDP growth.

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