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
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 | Last Change | Next Change | Forecasts | ||
End | End | |||||
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 | Forecasts | Stock Market | Latest | Forecasts | |||
End | End | End 2021 | End | |||||
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