Saudi Q2 budget data showed that high oil prices provided a major cushion for the public finances. But the oil windfall masks the underlying deterioration in the fiscal position over the last 18 months, and we think the deficit will stay wide in the coming years. Other Gulf economies have proven less resilient to the closure of the Strait of Hormuz than Saudi Arabia; their economies would benefit significantly if current negotiations prove fruitful. Finally, Egyptian inflation data due next week are likely to show a rise in the headline rate, but we still think the central bank will resume rate cuts by year-end.
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