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Egypt’s IMF talks, Saudi stocks drop, Tunisia elections

Reports that Egypt and the IMF are in negotiations over some kind of future cooperation suggests that the authorities are trying to soothe investor fears of fiscal loosening. But the absence of financing means that the government would not be under pressure to meet IMF fiscal targets and structural reforms are unlikely to be pushed through. Meanwhile, as we had warned would happen, the Saudi stock market has now erased all of its gains this year. And the outcome of Tunisia’s election mean that there will be few efforts to tackle the country’s large imbalances in the coming months.
Jason Tuvey Senior Emerging Markets Economist
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Middle East Economics Weekly

Tunisia rate hike, Saudi budget data, Egypt privatisations

Tunisia’s central bank hiked interest rates this week with policymakers almost certainly having one eye on the country’s fragile external position. But we do not think that this will prevent sharp falls in the dinar and, in turn, a sovereign default. Elsewhere, Saudi Arabia posted its largest budget surplus since 2013 in Q1 on the back of high oil prices and continued tight fiscal policy. If oil prices remain high, though, the proverbial purse strings are likely to be loosened, supporting activity in the non-oil sector. Finally, more details emerged of Egypt’s forthcoming privatisation drive with the government planning to remove itself from a whole swathe of sectors.

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Saudi Arabia’s economy grew at its fastest pace in a decade in Q1 and we think this strength will carry on over the rest of this year. The combination of rising oil output and the increasing likelihood of looser fiscal policy underpin our above-consensus forecast for the Kingdom’s economy to grow by 10% in 2022.

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Middle East Economics Update

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Headline inflation in Saudi Arabia rose to 2.3% y/y in April and we think that it will continue to accelerate over the coming months. Unlike in other parts of the emerging world, however, inflation will not surge to multi-year highs and, if anything, the risks to our inflation forecast lie to the downside.

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It's been a rocky week for the Turkish lira amid more changes at the central bank and political upheaval regarding a possible link between politicians and organised crime. This, coming alongside high inflation, has reduced the chances of an interest rate cut at the next meeting in June. Meanwhile, local currency bond yields have diverged in Central Europe recently, but we don't think this will continue and see scope for further rises in yields over the coming years, particularly in Czechia.

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Nigeria’s recovery to remain stuck in first gear

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