S&P Global’s EM+ series shifted focus to the Middle East and North Africa (MENA) region in a new report titled “MENA Sovereigns, Corporates, And Banks Enter A New Chapter As COVID-19 Concerns Linger,” published on RatingsDirect.
S&P selected six countries in this region considering their economic size, market relevance, and where it could provide an opinion about sovereign, corporate, and bank ratings. Much like the global economy, the six countries in the MENA region (MENA-6: Egypt, Morocco, Qatar, Saudi Arabia, Tunisia (no published rating), and the United Arab Emirates [UAE; no published rating]) are still operating in the shadow of the COVID-19 pandemic.
These countries’ greater reliance on energy exports and travel and tourism meant last year’s regional economic loss closely tracked the world composite. Regional growth started to rebound in the third quarter of 2020, but what seemed to be a sharp recovery path has been thwarted by subsequent virus waves. The pace of rebound is insufficient to bring these economies back to their pre-pandemic GDP trajectories by 2024.
Hydrocarbon endowments are a key difference between Gulf Cooperation Council (GCC) and North African sovereigns. Weak fiscal positions continue to weigh on North African countries, while GCC sovereign’s accumulation of high levels of government assets supports both their fiscal and external positions.
External imbalances remain a concern for Egypt. Meanwhile, Qatar’s sizeable external financing needs to reflect the funding profile of its banking sector. Governments have, to a large extent, provided stability; however, political institutions are still developing and decision-making processes lack transparency and remain centralized.
S&P sees a gradual recovery across most industries in the MENA-6, but corporates remain cautious. It expects continued pressures in some corporate sectors, particularly tourism, and aviation, with a gradual recovery in certain real estate segments.
Stronger oil prices are a key catalyst for the GCC region. Improving price trends are supportive for operating conditions in most segments of the larger oil, gas, and commodities sectors–including contract renewals in oil field services.
Most MENA banks have remained resilient despite the pandemic’s economic shock. S&P expects credit losses to peak across most of the region in 2021 and gradually trend down to historical values over 2022. However, it anticipates that non-performing assets will linger in some countries due to factors that include a sluggish economic recovery due to higher tourism dependence in Egypt and Morocco and intensifying political unrest in Tunisia. GCC banks’ performance should improve as higher oil prices support local economies.