Lebanese bond prices stabilized and credit rating agencies delayed action after Prime Minister Hariri returned to his post a month after resigning at Saudi Arabia’s behest over his government coalition with Hezbollah, allied with Iran and Houthi rebels in the Yemen civil war accused of firing missiles at Riyadh. He reprised the “dissociation” stance in regional conflicts despite the alignment in effect the past six years in Syria, against stronger Hezbollah fighter support for the Assad regime now prevailing with Russian air power against remaining rebel pockets. Hariri has dual Saudi citizenship and was briefly detained before flying back to Beirut, raising suspicion he was caught in the anti-corruption net for dozens of royal princes held in the Ritz-Carlton hotel. At home his team had finally passed a budget and forged an agreement for parliamentary elections after a decade hiatus. Tourism increased and offshore oil projects were under negotiation since taking office a year ago, although economic growth stayed at 1.5% under a 145% of GDP world-leading sovereign debt pile, which absorbs almost one-third of local bank assets as the major buyers. One-tenth the budget goes to debt service, and the central bank has resorted to fancy financial engineering to maintain allocation alongside the $7-8 billion in annual diaspora inflows. They are needed also to sustain over $40 billion in central bank reserves to maintain the longstanding 1500 pound/dollar peg. Other fixed dollar relationships in the Gulf have been in the crosshairs with geopolitical fissures, notably in Qatar under commercial and diplomatic boycott which recently extended to Tunisia with refusal of airport access. Lebanon’s scheme is considered solid in the absence of depositor flight, which has spiked rarely during shocks such as the assassination of Hariri’s father and Hezbollah-Israel war outbreak.
Egypt floated its currency after reaching a 3-year $12 billion IMF pact triggering heavy foreign investor bond and stock market inflows, and half the sum has been disbursed so far. Growth improved in the latest quarter to 5%, but inflation soared to 30% with the 50% pound devaluation and electricity subsidy adjustment. The budget deficit hit 10% of GDP mainly due to higher interest payments, as the central bank hoisted benchmark rates toward 20% following “prudent” monetary policy, according to the Fund’s November review. International reserves are at a record $37 billion, double the corresponding 2016 level, to cover seven months imports on combined remittance, and direct and portfolio investment strides. Gulf allies Saudi Arabia and the UAE in turn extended maturities on $4 billion in deposits coming due in 2018. President al-Sisi has targeted their investors to help develop his new desert “administrative capital,” at an estimated $5 billion first phase cost. Private property firms have purchased land and the Chinese will build a commercial center. However potential Saudi sponsors may be rethinking plans with Crown Prince Mohammed bin Salman’s crackdown on wealthy peers, including globetrotting Kingdom Holding chief executive Prince Alwaleed, with a commanding stake in Citigroup. The attorney-general has signaled minimum $100 billion forfeiture from the hundreds of influential business titans under confinement, as next year’s budget hiked spending for the first time in three years on forecast 2.5% growth aided by the captive payments.