Central banks in the Gulf will have to raise interest rates in line with the Fed (which we expect to hike four times both this year and next) by virtue of their dollar pegs, adding to headwinds facing non-oil sectors. Outside the Gulf, the main risk is that external financing conditions tighten sharply as major DM central banks raise interest rates. Tunisia’s external position is among the worst in the emerging world and downward pressure on the dinar would further increase the risk of a sovereign default given the country’s large FX debts. Elsewhere, Egypt’s widening current account deficit is a cause for concern. We expect a gradual depreciation of the pound but, if policymakers keep the currency steady for longer, a sharper and larger downward adjustment will eventually be needed.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services