Lebanon crisis, Saudi privatisation law, vaccine latest - Capital Economics
Middle East & North Africa Economics

Lebanon crisis, Saudi privatisation law, vaccine latest

Middle East Economics Weekly
Written by James Swanston
The long-running crisis in Lebanon hit a fresh low this week and, with the formation of a new government nowhere in sight, conditions are unlikely to improve any time soon. Elsewhere, the passing of a new privatisation law in Saudi Arabia adds to the efforts to attract foreign investment into the Kingdom, but more still needs to be done to get anywhere close to targets laid out in Vision 2030. And finally, COVID-19 vaccination programmes have been stepped in parts of the region over the past week or so which, if sustained, should mean restrictions are lifted sooner.

Lebanon’s crisis deepens

The long-running crisis in Lebanon hit a fresh low this week as the currency collapsed and the government scaled back subsidies. With the formation of a new government nowhere in sight, the crisis shows no signs of turning around soon.

The pound collapsed to as low as 15,000/$ this week on the black market – a discount of nearly 90% versus the official exchange rate. At the same time, Caretaker Finance Minister Ghazi Wazni announced that the central bank’s FX reserves have fallen below a critical level and, as a result, the government will scale back food subsidies and raise fuel prices. All of this will push up inflation, which is already in triple digits, and further increase the incidence of poverty.

We had warned that the crisis would get worse (see here) and with President Michel Aoun now calling for Prime Minister-designate Saad Hariri to resign if he cannot form a government soon, any efforts to resolve the crisis may go right back to square one.

Saudi privatisation efforts still a long way to go

The Saudi government passed the Private Sector Participation (PSP) law on Tuesday that aims to accelerate the privatisation in around 16 government sectors and help to attract investment into the Kingdom too. We noted in an Update earlier this month that foreign direct investment (FDI) into the Saudi economy has been very weak for some time and, while the PSP will help to enhance the private sector’s role in economic growth and improve transparency, much more needs to be done if the government is going to get anywhere near meeting the targets for FDI laid out in Vision 2030.

Privatisations will raise funds for the government that can be used to finance the budget deficit. While this will not directly narrow the shortfall, it will ease the Kingdom’s reliance on debt issuance and slow the rise in the public debt burden as well as limit crowding out of lending to the private sector.

Vaccination programmes ramping up

COVID-19 vaccination programmes have accelerated across the region over the past few weeks. The UAE announced that it had met its target of fully vaccinating half of the population by the end of this month two weeks early. And Bahrain has now given at least one dose to a third of its population. Morocco has continued to make good progress too, vaccinating 17.2 per 100 people but it is likely to miss its target of 80% coverage by May.

Programmes in Saudi Arabia and Qatar have seen a jump in their rate of vaccinations, with Saudi administering doses at a rate of 0.3 per 100 people per day and Qatar is vaccinating at a pace on par with the US. If Saudi and Qatar maintain their recent pace of vaccinations, vulnerable populations should have received one dose by June. The bigger picture is that, if vaccine rollouts continue to make good progress, virus restrictions can be eased sooner and this will support sustained economic recoveries.

What our new oil price forecast means for the Gulf

The surprise decision by OPEC+ to roll over its production cuts for another month, as well as Saudi Arabia’s pledge to maintain its 1mn bpd voluntary output cut through April, has prompted us to revise up our near-term oil price forecasts. (See our Energy Update for more detail.) The result is that we now expect the price of Brent crude to average around $72pb this year (previously $61pb).

Based on our new forecasts, the Gulf’s hydrocarbon exports will be about 65% higher than last year, which will push current account positions in Saudi, the UAE, Qatar, and Kuwait back into surplus. Budget deficits would also narrow by much more than we previously expected. All told, this will help to ease any lingering concerns about dollar pegs in the region and means that, for the time being at least, governments are unlikely to push through further fiscal austerity.


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

19th Mar

No Significant Data or Events

20th Mar

No Significant Data or Events

21st Mar

No Significant Data or Events

22nd Mar

UAE

Private Sector Credit (Jan.)

(+1.1%)

Jor

Industrial Production (Dec.)

(+3.6%)

Egy

Current Account Balance (Q4, USD)

-2.8bn

23rd Mar

No Significant Data or Events

24th Mar

No Significant Data or Events

25th Mar

UAE

Consumer Prices (Jan.)

(-2.1%)

(-0.5%)

Selected future data releases and events

26th Mar

Leb

Consumer Prices (Jan.)

+8.1%(+145.8%)

Leb

Consumer Prices (Feb.)

28th Mar

Sau

Private Sector Credit (Feb.)

(+14.4%)

29th Mar

Bah

GDP (Q4, q/q(y/y))

+1.4%(-6.9%)

+2.6%(-2.7%)

Qat

Private Sector Credit (Feb.)

(+8.7%)

Sau

Non-oil Trade (Q4, SAR)

55.1bn

30th Mar

Qat

GDP (Q4, q/q(y/y))

+5.6%(-4.5%)

+3.0%(-0.8%)

2nd Apr

Bah

Consumer Prices (Feb.)

-1.1%(-2.7%)

+0.7%(-0.7%)

5th Apr

Egy

Whole Economy PMI (Mar.)

49.3

Sau

Whole Economy PMI (Mar.)

53.9

UAE

Whole Economy PMI (Mar.)

50.6

Kuw

Consumer Prices (Feb.)

+0.1%(+3.0%)

6th Apr

Leb

Whole Economy PMI (Mar.)

42.2

Oma

Consumer Prices (Mar.)

0.0%(-1.6%)

8th Apr

Egy

Foreign Exchange Reserves (Mar., USD)

40.2bn

UAE

Consumer Prices (Feb.)

+0.1%(-2.1%)

11th Apr

Egy

Consumer Prices (Mar.)

+0.2%(+4.5%)

12th Apr

Bah

Private Sector Credit (Feb.)

Oma

Private Sector Credit (Feb.)

(+2.7%)

13th Apr

OPEC

OPEC Monthly Oil Market Report

*m/m(y/y) unless otherwise stated

Sources: Bloomberg, Refinitiv, Capital Economics


Main Economic & Market Forecasts

Table 1: GDP & Consumer Prices (% y/y)

Share of

World 1

2008-18

Ave.

GDP

Consumer Prices

2018

2019

2020

2021

2022

2018

2019

2020

2021

2022

Saudi Arabia

1.2

3.5

2.4

0.3

-4.3

2.3

6.3

2.5

-2.1

3.4

3.8

1.8

Egypt

0.9

3.9

5.4

5.5

1.0

6.0

6.3

14.4

8.6

5.2

5.8

4.5

UAE

0.5

2.8

1.7

3.0

-9.0

9.8

6.8

3.1

-1.9

-2.1

2.5

3.0

Algeria

0.4

2.8

1.5

0.8

-9.3

4.5

4.0

4.3

2.0

2.4

5.0

6.5

Morocco

0.2

3.8

3.0

2.3

-6.5

9.5

4.3

1.8

0.2

0.7

1.0

1.3

Qatar

0.2

7.4

1.4

-0.4

-2.8

4.5

4.3

0.3

-0.6

-2.6

1.3

2.5

Kuwait

0.2

1.1

1.2

0.4

-7.8

4.0

5.3

0.6

1.1

2.1

3.3

2.5

Oman

0.1

4.1

2.0

0.5

-7.3

7.0

2.8

0.9

0.1

-0.8

2.8

1.3

Tunisia

0.1

2.3

2.5

1.0

-8.6

8.0

3.5

7.3

6.7

5.6

5.3

5.8

Jordan

0.1

3.2

2.0

2.5

-1.5

2.8

2.3

4.5

0.8

-0.3

2.0

3.8

Lebanon

0.1

3.4

0.2

-3.0

-40.0

-10.0

6.8

6.1

2.9

84.9

59.0

9.5

Bahrain

0.1

3.8

2.0

1.8

-4.5

6.0

3.3

2.1

1.0

-2.3

1.0

1.8

Middle East & North Africa

4.0

3.7

2.7

2.0

-5.2

4.9

5.6

5.3

1.5

4.1

4.9

3.3

Sources: Refinitiv, Capital Economics. 1) % of GDP, 2019, PPP terms (IMF estimates).

Table 2: Central Bank Policy Rates

Policy Rate

Latest
(18th Mar.)

Last Change

Next Change

Forecasts

End
2021

End
2022

Saudi Arabia

Reverse Repo Rate

0.50

Down 75bp (Mar. ’20)

None on the horizon

0.50

0.50

Egypt

Overnight Deposit Rate

8.25

Down 50bp (Nov. ’20)

Down 50bp (Q4 2021)

7.75

6.75

UAE

Repo Rate

0.75

Down 75bp (Mar. ’20)

None on the horizon

0.75

0.75

Algeria

Discount Rate

3.25

Down 50bp (Mar. ’20)

None on the horizon

3.25

3.25

Qatar

Deposit Rate

1.00

Down 50bp (Mar. ‘20)

None on the horizon

1.00

1.00

Kuwait

Discount Rate

1.50

Down 100bp (Mar. ’20)

None on the horizon

1.50

1.50

Morocco

Key Rate

1.50

Down 50bp (Jun. ’20)

None on the horizon

1.50

1.50

Oman

Overnight Repo rate

0.50

Down 100bp (Mar. ’20)

None on the horizon

0.50

0.50

Tunisia

BCT Key Rate

6.25

Down 50bp (Sep. ’20)

None on the horizon

6.25

6.25

Jordan

Overnight Deposit Rate

1.75

Down 100bp (Mar. ’20)

None on the horizon

1.75

1.75

Lebanon

Repo Rate

10.00

Down 200bp (Dec ‘09)

None on the horizon

10.00

10.00

Bahrain

1-week deposit facility

1.00

Down 75bp (Mar. ’20)

None on the horizon

1.00

1.00

Sources: Bloomberg, Capital Economics

Table 3: Currencies and Stock Markets

Currency

Latest
(18th Mar.)

Forecasts

Stock Market

Latest
(18th Mar.)

Forecasts

End
2021

End
2022

End

2021

End
2022

Saudi Arabia

SAR/USD

3.7503

3.7500

3.7500

TASI

9,554

10,850

13,050

Egypt

EGP/USD

15.67

16.00

17.00

EGX30

10,920

13,800

16,400

UAE

AED/USD

3.6728

3.6725

3.6725

DFMGI

2,615

2,975

3,500

Algeria

DZD/USD

133.3

160.0

170.0

Qatar

QAR/USD

3.6415

3.6400

3.6400

QSE

10,181

12,650

14,800

Kuwait

KWD/USD

0.3014

0.3040

0.3040

KWSE

5,793

7,000

7,000

Morocco

MAD/EUR

10.74

11.25

11.50

MADEX

9,410

9,950

10,000

Oman

OMR/USD

0.3840

0.3845

0.3845

MSM30

3,751

4,500

5,200

Tunisia

TND/EUR

3.29

3.60

3.80

TUNINDEX

6,779

7,150

7,250

Jordan

JOD/USD

0.71

0.71

0.71

ASE

1,733

2,050

2,350

Lebanon

LBP/USD

1505.7

7,500

7,500

BLOM

823

825

850

Bahrain

BHD/USD

0.3769

0.3761

0.3761

BHSE

1,462

1,850

2,100

Sources: Bloomberg, Capital Economics


James Swanston, MENA Economist, james.swanston@capitaleconomics.com