Fitch: Diverging outlooks for Middle East oil exporters and importers
- United Arab Emirates: Thursday, December 20 - 2012 at 15:34
- PRESS RELEASE
In its end-year outlook report, Fitch Ratings says a broadly stable outlook for the MENA region in 2013 will mask continued divergence between oil exporters and oil importers.
Oil production is expected to be slightly down on 2012, reducing overall GDP growth rates, but non-oil growth will remain healthy. High oil prices and production will allow further government stimulus alongside large twin budget and current account surpluses.
Growth prospects are much weaker for the oil importers rated by Fitch and especially for Egypt and Tunisia, which are the only two countries with Negative rating Outlooks. In these two, continued political unrest is putting pressure on creditworthiness. Two years into the Arab Spring, their transitions are proving to be complex and bumpy while the weak eurozone economy weighs more heavily on North Africa. However, Fitch still expects growth to continue to revive slowly in Egypt and Tunisia, though remaining well below the pace needed to reduce unemployment.
In Lebanon, spillover from Syria is clouding prospects, with reduced tourism and business confidence bringing weaker growth while political spillover is exacerbating an already complex political situation.
Major divergences between the external positions of oil importers and exporters will endure. All the region's oil importers will run current account deficits while all the region's oil exporters will record large surpluses and make further additions to already large sovereign external assets.
Oil exporters' fiscal positions will weaken modestly in 2013 owing to slightly lower oil revenues and continued spending growth. Fiscal consolidation is much more urgent in oil importing countries. In North Africa, there is a need to start reducing large budget deficits which have swelled since 2011, especially by reducing fuel subsidies. Morocco has made a start as has Egypt, but building the political support for unpopular fiscal adjustments will be challenging, as confirmed by Egypt's recent decision to postpone its IMF programme to allow more time to garner support for the adjustment measures. Donors will support fiscal reforms, but political considerations will influence the pace of implementation.
Although inflationary trends will vary, in general Fitch believes price pressures will remain subdued in line with global trends. Governments will try to limit the impact of higher international food prices on domestic prices, and efforts to rein back petroleum subsidies in North Africa will be gradual. Fitch does not expect any hikes in interest rates.
The political changes in the region have pushed job creation to the top of the policy agenda. Efforts to strengthen the private sector through labour market and business environment reforms are likely across the region. However, new governments in North Africa have yet to formulate comprehensive strategies to address youth unemployment - one of the underlying causes of the Arab Spring. The challenge for oil exporters is different - to adjust the balance of incentives to encourage the private sector to hire more nationals without undermining its competitiveness.
Domestic political transformation will proceed in North Africa but progress will remain uneven and vulnerable to setbacks. Oil exporters should be more stable, though current tensions in Bahrain and Kuwait will remain and further local stresses are possible. Tensions between Israel and Iran and the civil conflict in Syria will continue to generate uncertainty. While the region's oil exporters have significant buffers to absorb economic shocks, the oil importers are less secure.
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