Middle East


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.

20 October 2021

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.

19 October 2021

UAE vaccine rollout, Egypt and Oman subsidy reversals

The announcement that the price of state-subsidised bread in Egypt will be raised adds to our view that inflation will drift higher and that the central bank will hold off from cutting rates for now. Elsewhere, Oman’s government looks set to reverse its plans to remove electricity subsidies, which may add to concerns about the commitment to repair very weak public finances. Finally, the UAE is expanding its COVID-19 vaccine rollout as the authorities hope to support the non-oil economy and the tourism sector in particular.

5 August 2021
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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.

OPEC+ fallout, Oman and the IMF, vaccines in Egypt

The failure of OPEC+ to reach an agreement over new output quotas has raised the likelihood that the deal collapses and the Gulf states ramp up production. Elsewhere, Oman has asked for IMF assistance with its fiscal plans but it will still probably have to continue relying on financial support from the rest of the Gulf. And finally, while Egypt’s vaccination programme got a boost this week, it will still be sometime before restrictions are lifted, which will dash hopes of a revival in the tourism sector this summer.

Higher oil prices to help narrow twin deficits

The price of oil has continued to rise and will help to improve balance sheets in the Gulf. With oil prices at $75pb, all Gulf economies with the exceptions of Bahrain and Oman are likely to be running current account surpluses, having run deficits in 2020. Budget deficits will have narrowed too and this may open the door to looser fiscal policy. Indeed, there have been signs recently that policymakers in Kuwait, Oman and Saudi Arabia are moving in this direction. However, we expect that the price of oil will fall later in the year, meaning that the window to raise spending may be limited.

The latest on COVID-19 and vaccines in MENA

Virus numbers have fallen in the past few months in the MENA region and a rapid vaccine rollout should allow most of the Gulf economies, as well as Morocco, to lift restrictions further over the second half of the year. Elsewhere in the region, where the vaccine rollout is much slower, containment measures will stay in place for longer and the key summer tourist season will be lost for the second year in a row.

Oman: no devaluation, but a big dose of austerity

Oman is one of the most vulnerable economies in the Gulf to a period of ultra-low oil prices but we think that financial support from its neighbours will avert the need to abandon the dollar peg. Even so, the government is ramping up fiscal austerity more quickly than it did in 2014-16. Once restrictions related to the coronavirus are lifted, the economic recovery will be weak.

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