Tunisia and the IMF, UAE COVID outbreak, “The Line” - Capital Economics
Middle East & North Africa Economics

Tunisia and the IMF, UAE COVID outbreak, “The Line”

Middle East Economics Weekly
Written by James Swanston
Tunisia’s government appears to be gearing up to secure a new IMF deal and, while fiscal consolidation will be among the Fund’s key conditions, it will prove difficult to implement. Elsewhere, the UAE’s second COVID-19 virus wave has resulted in travel restrictions being reimposed, which will dent the recovery. But the rapid vaccine rollout means that it should prove to be short-lived. And finally, Saudi officials unveiled their latest mega project, “The Line”, this week which has reinforced our concerns that policymakers’ attention is being diverted away from the reforms that are needed to improve the Kingdom’s long-term economic prospects.

Tunisia on the verge of new IMF deal?

Tunisian Prime Minister Hechem Mechichi confirmed this week that the government is set to launch a package of reforms in a sign that the authorities are gearing up to secure a new IMF deal. Fiscal consolidation will be among the Fund’s key conditions, but will prove difficult to implement.

Since the previous $2.8bn Extended Fund Facility expired in March, a $745mn Rapid Financing Instrument from the Fund had tided Tunisia over during the COVID-19 crisis. But with the country running large budget and current account deficits and the government shying away from issuing debt, a new IMF deal always looked to be on the cards.

Any new deal from will come with conditions and top of the list will be fiscal consolidation to shore up the country’s public finances. But, as we argued in an Update last year, the crisis, pressure from labour unions for public sector wage hikes, and the highly-fragmented nature of parliament will be difficult to push through

UAE’s COVID outbreak to delay recovery

The UAE’s second virus wave has firmly taken hold and resulted in travel restrictions being reimposed, which will dent the recovery. But the rapid vaccine rollout means that it should prove to be short-lived.

The past two weeks have seen a sharp rise in cases in the UAE and the outbreak has prompted the UK to remove the country from its travel corridor. Reports suggest that a recent influx of Brits may have been a factor behind the worsening outbreak.

Tighter travel restrictions will dash any hopes of a meaningful recovery over the next few months. That said, the ‘vaccine bounce’ in the recovery is likely to occur sooner than in other parts of the Gulf on the back of a rapid vaccine rollout. Since last week, the share of population to have been inoculated has risen from 9% to 14% and officials said it could reach 50% by the end-Q1.

Dubai Holding further sign of strain in GREs

Dubai Holding this week faced a request from Mashreqbank to bail out its subsidiary, Dubai Holding Investments Group (DHIG), after the company said that it won’t fully repay a $1.2bn loan. While this appears to be a special case, the fact that Dubai Holding (and the Emirate’s government) is unwilling to make the payment may raise fresh concerns over the debts of Dubai’s government-related entities. (See here.)

‘The Line’: so let’s get this straight…

Saudi officials unveiled another megaproject this week but this has merely reinforced our concerns that policymakers’ attention is being diverted away from the reforms that are needed to improve the Kingdom’s long-term economic prospects.

Plans were revealed on Sunday for “The Line”, a new city that will stretch in a straight 170km line from the Red Sea into the Saudi desert. “The Line” will supposedly represent the future of cities with no cars, no streets and no carbon emissions. Meanwhile, in an interview with the Financial Times, the chairman of the Public Investment Fund (Saudi Arabia’s sovereign wealth fund) outlined plans to invest up to $40bn a year (5 % of GDP) in the Saudi economy over the first half of this decade. PIF will be a cornerstone investor in “The Line”.

We’ve highlighted before, however, that Saudi Arabia has a poor track record when it comes to megaprojects. The best example is King Abdullah Economic City, which has failed to get anywhere near reaching its initial goal of rivalling Dubai. There are also concerns whether it is appropriate for the government to be picking winners in the economy. And the focus on megaprojects is diverting attention away from key reforms that, arguably, would do more to boost the Kingdom’s long-run prospects. We’ve argued before that the Vision 2030 reforms already falls short in key areas.

Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

17th Jan

No Significant Data

18th Jan

No Significant Data

19th Jan

No Significant Data

20th Jan

Kuw

Consumer Prices (Dec.)

+0.3%(+2.8%)

-0.6%(+2.0%)

Egy

Current Account Balance (Q3, USD)

-3.8bn

Selected future data releases and events

22nd Jan

Mor

Consumer Prices (Dec.)

-0.7%(+0.2%)

-0.2%(0.0%)

Leb

Consumer Prices (Dec.)

+0.5%(+133.5%)

+25.6%(+185.6%)

23rd Jan

Bah

Consumer Prices (Dec.)

-0.2%(-3.6%)

+3.8%(+1.0%)

28th Jan

Sau

Private Sector Credit (Dec.)

(+14.9%)

29th Jan

Bah

GDP (Q3, q/q(y/y)

-7.1%(-8.9%)

+2.8%(-5.3%)

3rd Feb

Egy

Whole Economy PMI (Jan.)

48.2

Sau

Whole Economy PMI (Jan.)

57.0

UAE

Whole Economy PMI (Jan.)

51.2

4th Feb

UAE

Consumer Prices (Dec.)

-0.1%(-2.4%)

+1.9%(-0.4%)

Egy

Interest Rate Announcement

8.25

8.25

5th Feb

Tun

Consumer Prices (Jan.)

+0.3%(+4.9%)

+1.0%(+5.3%)

10th Feb

Egy

Consumer Prices (Jan.)

-0.5%(+5.4%)

+0.7%(+5.5%)

11th Feb

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

-4.0

3.5

6.0

2.5

-2.1

3.3

3.0

1.8

Egypt

0.9

3.9

5.4

5.5

1.0

6.8

5.0

14.4

8.6

4.8

5.3

6.0

UAE

0.5

2.8

1.7

3.0

-9.3

98

6.8

3.1

-1.9

-1.8

2.5

3.0

Algeria

0.4

2.8

1.5

0.8

-9.0

4.5

4.0

4.3

2.0

2.0

4.0

6.5

Morocco

0.2

3.8

3.0

2.3

-6.0

9.3

4.3

1.8

0.7

0.8

2.0

1.5

Qatar

0.2

7.4

1.4

-0.4

-2.8

4.5

4.3

0.3

-0.6

-2.8

1.5

2.5

Kuwait

0.2

1.1

1.2

0.4

-7.8

4.0

5.3

0.6

1.1

1.8

2.8

2.5

Oman

0.1

4.1

2.0

0.5

-7.3

7.0

2.8

0.9

0.1

-0.8

3.3

2.3

Tunisia

0.1

2.3

2.5

1.0

-8.0

8.5

3.5

7.3

6.7

5.8

5.0

5.0

Jordan

0.1

3.2

2.0

2.5

-3.3

5.8

4.0

4.5

0.8

0.5

2.8

3.8

Lebanon

0.1

3.4

0.2

-3.0

-40.0

-10.5

6.8

6.1

2.9

95.8

48.3

6.0

Bahrain

0.1

3.8

2.0

1.8

-4.5

6.0

3.3

2.1

1.0

-1.5

2.5

2.0

Middle East & North Africa

4.0

3.7

2.7

2.0

-5.1

5.6

5.2

5.1

1.6

4.1

4.2

3.7

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

Table 2: Central Bank Policy Rates

Policy Rate

Latest
(14th Jan.)

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
(14th Jan.)

Forecasts

Stock Market

Latest
(14th Jan.)

Forecasts

End
2021

End
2022

End

2021

End
2022

Saudi Arabia

SAR/USD

3.7515

3.7500

3.7500

TASI

8,881

10,850

13,050

Egypt

EGP/USD

15.61

16.00

17.00

EGX30

11,415

13,800

16,400

UAE

AED/USD

3.6728

3.6725

3.6725

DFMGI

2,697

2,975

3,500

Algeria

DZD/USD

132.8

160.0

170.0

Qatar

QAR/USD

3.6411

3.6400

3.6400

QSE

10,890

12,650

14,800

Kuwait

KWD/USD

0.3030

0.3040

0.3040

KWSE

5,655

7,000

7,000

Morocco

MAD/EUR

10.77

12.00

12.50

MADEX

9,181

9,950

10,000

Oman

OMR/USD

0.3840

0.3845

0.3845

MSM30

3,634

4,500

5,200

Tunisia

TND/EUR

3.29

3.60

3.80

TUNINDEX

6,711

7,150

7,250

Jordan

JOD/USD

0.71

0.71

0.71

ASE

1,718

2,050

2,350

Lebanon

LBP/USD

1505.7

7,500

7,500

BLOM

660

625

650

Bahrain

BHD/USD

0.3769

0.3761

0.3761

BHSE

1,456

1,850

2,100

Sources: Bloomberg, Capital Economics


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