Emerging Markets Economics

Oil exporters take mixed approach to higher oil prices

Frontier Markets Monthly Wrap
Written by Capital Economics Economist

The recent rally in oil prices has brightened the outlook for the majority of frontier oil exporters. In the Gulf, for example, higher oil prices and strong balance sheets have enabled the authorities to ease back on the harsh fiscal austerity of the past few years. The Saudi government has announced a raft of bonuses for public sector workers which will help to propel the economy out of recession this year. At the same time, neighbouring Bahrain has postponed the introduction of fresh austerity measures.

One notable exception, however, is Angola where the government took the long-delayed step this month of devaluing the kwanza. The currency has dropped 20% against the dollar so far and we think it has further to fall. The move is a positive step towards more orthodox policymaking under the new president, João Lourenço. In the near-term, though, inflation will surge, the economy is likely to fall back into recession and a messy debt restructuring is possible.