Entries for 'Middle East North Africa'

We examine currencies in the MENA region with large secondary market discounts, the biggest of which are in Lebanon, Syria, Iran and Sudan. The divergence of official and parallel FX rates in these countries reflects decades of economic mismanagement, public corruption, and international sanctions. 

EM are experiencing an unprecedented and synchronized growth slowdown in ‘20. Restrictions remain in place in many countries, as the health crisis is far from over. The fiscal response has been uneven in EM, with some running out of policy space. Most EM central banks cut rates aggressively, and QE has become part of the toolkit. Asset price recovery and a modest return of capital flows should provide support.

The recent rise in oil prices is supported by the cut in global oil production and partial recovery in demand. We still expect Brent oil prices to average $40/b in 2020 and $45/b in 2020. Downside risks include poor OPEC+ compliance with the cuts and a continued global economic slowdown

Shocked by COVID-19 and the plunge in oil prices, the six GCC states will experience their worst recession in history. However, most GCC public sectors and banks are well positioned to absorb the shocks due to their large buffers and aggressive fiscal adjustments. 

Capital inflows to the MENA region will remain high despite the global backdrop. We expect the plunge in oil prices and widening fiscal deficits will lead to a decline in private non-resident capital flows to oil importers, but will be partly offset by higher official flows. 

Lebanese authorities have developed a five-year comprehensive reform program, which could be supported by the IMF’s Extended Fund Facility. If implemented effectively we expect the macroeconomic situation to stabilize and an orderly debt restructuring, though significant challenges remain. 
 

We expect the IMF to approve, in the coming weeks, the Egyptian authorities’ request for financial assistance through a Rapid Financing Instrument (RFI) and a Stand-By Arrangement (SBA). This financial support package would help strengthen confidence in the economy and meet large financing needs. 

We project a deep recession in 2020 due to COVID-19 and the plunge in oil prices. Saudi Arabia can accommodate widening deficits given its large financial buffers and low debt. 
 

The OPEC+ bloc agreed to cut oil production by a record 9.7mbd. Assuming full compliance, we expect Brent crude to average $40/bbl in 2020. Cuts will last through April 2022, at lower levels. Major non-OPEC+ producers will cut by up to 3.5mbd. Inventories should peak in Q2 and then drop in H2. 

Russia’s fiscal breakeven oil price, around $40/bbl in 2020, is the lowest among major oil exporters. While Saudi Arabia’s fiscal and external breakeven prices should decline due to a cut in non-priority spending and a fall in imports, fiscal breakeven prices remain well above $60 in much of MENA. 

Our MENA growth forecast stands at -0.3% with additional downside risks and high uncertainty over the duration of the shutdown and an additional potential fall on oil prices. We project recession in most oil exporters, the lowest growth in oil importers since the early 1990s, and wide twin deficits. 

Authorities aim at boosting capital spending through the credit channel. Turkey’s external vulnerabilities have been somewhat reduced in 2019. Credit growth buffered the economy from weaker growth last year. Global recession risks pose significant challenges for growth in 2020. 

We have lowered our average Brent oil price assumption by $10/bbl to $54/bbl for 2020 due to lower global demand for oil. Such a decline exposes significant vulnerabilities among MENA oil-exporting countries, especially Oman and Bahrain. External and fiscal positions are expected to weaken.

The fixed exchange rate was not adequately supported by other policies. Loose fiscal policy pushed public debt to unsustainable levels, while a slowdown of capital inflows, corruption, and regional conflicts weakened economic prospects. A viable economic program with international financing is key. 

The formation of a government based on a "cabinet of experts" raises the chances of reforms that could arrest the country’s downward economic spiral and facilitate access to already-pledged concessional loans. However, restoring growth will require additional capital inflows from official sources. 

U.S. sanctions have almost wiped out Iran’s ability to sell crude oil, pushing the economy into recession for a second year and spurring the authorities to increase taxes and cut subsidies. While they are reluctant to renegotiate the nuclear deal, the country's medium-term potential is considerable.

Five months into the IMF’s $6 billion EFF program, Pakistan’s progress looks better than anticipated. • We expect official reserves to continue recovering as the current account narrows and capital inflows improve. However, gross external financing needs at around 9% of GDP warrant caution. 

The extra 0.5 mbd cut may not be enough to rein in projected oversupply in 2020, since the OPEC+ bloc has already made cuts well beyond the 1.2 mbd target of the previous agreement. Consequently, we expect a decline in average Brent oil prices to $60 a barrel in 2020.

Lower government spending has decreased medium-term fiscal vulnerabilities to lower oil prices. As the PIF is taking a leading role in public investments, capital expenditures in the budget have declined significantly. Despite fiscal headwinds, non-oil growth is expected to remain solid at 2.7%.

Protests have continued since February, with the public calling for an overhaul of the ruling elite, but we expect limited change in the power structure. Economic activity will remain weak, as twin deficits persist and reserves fall. The 2020 budget envisages tightening, but deep reforms are needed.