The Arab Spring’s Seasonal Exam Markdown

2017 June 10 by

The IMF completed reviews on the second post-Arab Spring round of programs with Jordan, Tunisia and Morocco, as Egypt awaited a turn after signing its agreement six months ago with stock markets flat to negative reflecting the lackluster reports. Jordan’s economic plight remained “challenging” with 2 percent growth, 4 percent inflation and over 15 percent decade-high unemployment. The fiscal deficit fell to 4 percent of GDP last year, with state utility company losses down, but public debt rose to 95 percent and the current account gap swelled above 9 percent. Geopolitical and security tensions still “impinge” on the medium-term investment outlook, despite additional donor support for refugee hosting, now able to be channeled through a World Bank-led $1 billion concessional platform. The Fund urged further moves against tax exemption and evasion and toward public-private partnerships to reduce budget costs and strengthen infrastructure efficiency. The central bank has hiked rates with foreign reserves slipping below target, as work continues on deposit protection, insurance, bankruptcy and other rules to bolster the business climate. Tunisia also was scolded for its runaway government wage bill elevating debt/GDP to 65 percent as growth doubles to a meager 2.5 percent, “too low” to attack youth joblessness and interior region poverty. The 5-year development plan aims to restore stability and tackle structural barriers through corruption and state bank and enterprise cleanups. Exchange rate flexibility and pension overhaul are on the agenda, and the country could benefit from the G-20 Compact for Africa initiative under outgoing host Germany. At home protests have erupted over proposed “economic reconciliation” legislation that would grant amnesty to illegal fund holders in return for declaring and investing the proceeds, as a “second revolution” has sparked occupation of key mining sites triggering military protection. The new US-trained Finance Minister has yet to win additional backing from Washington, as preparations for the joint commercial summit inaugurated last year stay on hold under the Trump administration.

For Morocco’s $3.5 billion arrangement risks are to the “downside” despite an expected growth rebound to 4 percent with unfinished fiscal and banking sector consolidation. Inflation is in the 1-2 percent range, and corporate and household deleveraging cut credit expansion to 5 percent, as the bad loan ratio neared double digits. Concentration with leading banks chasing the same state company borrowers and cross-border exposure throughout Sub-Sahara networks are major concerns, as the construction industry also heads into a weak period. The current account deficit should be 2 percent of GDP this year with good phosphate exports and tourism and remittance inflows. After preliminary fuel subsidy rollback, budget efforts have stalled and the Justice and Development party after securing an extended mandate in October elections intends to pursue decentralization, civil service salary caps, and better public enterprise governance. Parliament is set to approve provisions for bank emergency liquidity assistance as formal supervisory understandings are forged in the respective Francophone zones with a Moroccan presence. The currency peg is gradually shifting to a fluctuation band, and “e-regulation” is at the center of a campaign to lift the number 70 ranking in the World Bank’s Doing Business publication. Small firm credit access is a priority, and new collateral procedures are designed to unblock traditional financial establishment hesitation, according to the latest Article IV survey.


Iran’s Rouhani Economic Resistance Rut (Asia Times)

2017 May 13 by

After a 5% loss from December to end-March, the Tehran Stock Exchange retraced the previous 79000 point level ahead of May 19 elections pitting the incumbent President Hassan Rouhani against a half dozen approved candidates Hard-liners Ebrahim Raisi, a protégé of Supreme Leader Ayatollah Khamenei, and Mohammed Baqer Qalibaf, the capital’s mayor since 2005 and a contender in the 2012 contest, are positioned as the main rivals after the ruling clerics rejected former President Mahmoud Ahmadi-Nejad’s surprise application for another term. In a televised debate these rivals castigated rising unemployment, officially up 1.5% to 12.5% the past year despite Rouhani’s international nuclear deal for sanctions relief, which restored oil exports to 2 million barrels/ day for estimated 4.5% growth according to the IMF. Their campaign platforms draw on the Supreme Leader’s “resistance economy” concept, spurning Western foreign investment and advocating self-reliance and higher cash transfers to the poor and struggling middle class.

Rouhani has acknowledged slow improvement in living standards since the accord went into effect in early 2016, and lapses in bank and state enterprise restructuring to boost competitiveness. His description at the time of the “golden page” in history was overstated and may be further tarnished should President Trump formally withdraw the US from the six-nation pact, but the stock market is betting he and his team could redouble competitiveness and integration efforts with extended tenure. However even with victory these reform wishes could again be misplaced by populist backlash magnified by the race, as the growing tab to rescue government banks and companies again resuscitates recession fears.

Raisi was appointed to head the country’s biggest charitable foundation, with $15 billion in assets in charge of the holiest shrine in Masshad and close ties to the Revolutionary Guards still under Washington’s commercial and financial prohibitions. An Islamic law scholar, he also spent his career working with the security forces and was a member of the notorious “Death Commission” two decades ago which killed thousands of political prisoners. Supporters tout his experience as head of the religious endowment for charting economic direction that is “pro-people and production” and avoids “social shocks,” according to recent statements. In the past four years of Rouhani’s term the Guards have taken over nominally “privatized” factories and properties, and continue to control large chunks through affiliates of leading stock exchange listings. Analysts attribute their dominance to the “corruption, mismanagement and lack of regulation” which continue to place Iran in the lower tier of the World Bank’s “Doing Business” ranking.

Raisi has seized on the rich-poor gap and 35% youth joblessness to call for a tripling in budget cash handouts, even though fellow conservatives like the parliamentary speaker Ali Larjani remind him no money is available with the chronic deficit and 60% of the population escaping tax. He may turn to the central bank and state-owned lenders as an alternative for resource transfer, but so-called quasi-fiscal activities are already high and explain the 20 percent annual rise in the monetary base jeopardizing the single-digit inflation target. President Rouhani managed to slash the rate from 40% to just over 10% with relatively tight policies, and hailed such achievements as “actions not slogans” in re-election rhetoric. Diversification from hydrocarbon dependence has been another hallmark, and the non-oil current account is now roughly in balance with almost $90 billion in exports for the end-March fiscal year, the Economy Ministry reported.

However bank bad loans following local classification rules remain over one-tenth of portfolios, and proposed cleanup legislation that would stiffen guidelines and grant more independent enforcement and resolution powers are stuck in political limbo. The next government may face an outright crisis with “difficult to address” issues including recapitalization and rollback of targeted lending schemes, according to the Industry and Trade Minister. The overdue reckoning coincides with Iranian bank reconnection to the external SWIFT payments network and applications to reopen branches in Europe in Asia, as smaller counterparts beneath the radar of lingering US sanctions forge correspondent relationships. These ties inject new cross-border risk as the dual exchange rate system also awaits modernization, with such obstacles potentially resistant to near-term change by the surviving reform constituency.





Refugee Compacts’ Salient Solution Crush

2017 April 28 by

A year-long joint global displacement study group by the Center for Global Development and International Rescue Committee cast the issue as a “protracted crisis” and lauded the new aid compact approach with host countries, while urging comprehensive revamp of supporting economic data and policies. Low and middle-income economies host 90 percent of the 20 million refugees fleeing conflict, who are away on average a decade. Only 25 percent are in camps, and humanitarian and development funding and tools have not matched the duration and severity in a “fractured system.” In 2016 governments, bilateral and multilateral agencies and civil society and private sector representatives met at consecutive conferences to channel billions of dollars to Jordan and Lebanon in initial compact pilots, with a separate pledging session for Syria and the region in London and launch of a concessional loan facility led by the World Bank, allocating $700 million to date, with an associated $2 billion poor country refugee influx window. These pacts work with the UN Commission and other performance based deals kike the EU’s EUR 3 billion to Turkey for Syrian repatriation from Greece and select onward resettlement. Education and job creation have been the main goals and the track record is early but standardized methods and outcome measurement are lacking.

The model of a public-private sector implementation board combining political and technical expertise, as adopted for the US Millennium Challenge anti-poverty program, is absent and impedes shared analysis and planning and rapid negotiation and disbursement timeframes can frustrate lasting results. Social service provision must take into account their scarcity for the existing local population, which typically also has steep joblessness. Refugees are often pushed to the labor market “shadows” and children denied school entry. In Lebanon classes are run in shift for citizens and newcomers, with quality suffering for both amid overcrowding. Jordan committed to issuing tens of thousands of migrant work permits in exchange for World Bank cash and EU duty free import access, but the number has not been reached and only 5 percent are to women. The process is bureaucratic and business startup is also “difficult” with minimum local partner and capital criteria, according to the report. The “right actors” have not been at the table, with limited local non-government input and private sector mobilization at home and abroad. They could be instrumental in putting rigorous assessment and procedure in place and creating an inclusive stakeholder mechanism. Basic information gaps endure across the board, from refugee numbers to job and school enrollment, and cost and impact evidence of integration steps is scant and far from the authors’ ideal of an umbrella policy index. The private sector can inject knowhow, resources  and innovation, but collective action like the Partnership for Refugees started under the Obama administration is nascent, with no cross-border coordination capacity. Business and financial firms are equipped to take long-term risk and crisis fundraising could extend beyond philanthropy to commercial sources. Donors could join in sponsoring ventures such as practiced by USAID’s ideas lab. Skills training and infrastructure building are two areas of competitive advantage where compacts could better deliver on promise with enlarged vision scrapping the humanitarian-development divide, the two study backers argue.



Egypt’s Chiseled Church Chastening

2017 April 22 by

Egyptian shares with a slight first quarter bump on the MSCI index recoiled after a spate of Coptic Church holiday bombings claimed by ISIS, as President Al-Sissi fresh from a White House meeting with President Trump who praised his toughness, declared a state of emergency granting security forces more discretionary detention power. The President came to Washington seeking US designation of the Muslim Brotherhood as a terrorist group, as counterparts agreed to expand economic and military cooperation. He freed jailed predecessor Mubarak around the time of the trip, and a $4 billion Eurobond was successfully placed as foreign investors also tiptoe back into local debt lured by tax-free double digit yields. Since signature of the $12 billion IMF loan late last year reserves are up $7 billion to $27 billion, the highest since the Arab Spring. The World Bank and African Development Bank have released tranches as part of the package, but remittances rose 10 percent in the last quarter after an extended fall as workers finally repatriated cash with the official pound float and the dollar rate settled at 16-17. With 50 percent depreciation tourism recovered overtaking safety qualms, and non-petroleum exports jumped 25 percent in January. Despite headline 3 percent GDP growth, the PMI manufacturing gauge continues to contract, and consumers have been whacked by subsidy cuts and 30 percent inflation. The fiscal deficit spurted to 12 percent of output and unemployment is reported at the same figure although stricter estimates near double it. Dollar shortages persist but officials on the bond road show diverted concern by pointing out imminent offshore gas production from a large field. However with the human rights crackdown Western donors will again come under pressure from advocacy groups to withhold promised aid, repeating the pattern from the military coup against President Morsi in the initial post-Mubarak transition.

Algeria, with hydrocarbons over 95 percent of the economy, had earlier widespread civil unrest and terrorism and has struggled to diversify and reduce state control without official outside help. It recently embarked on a high-profile US investment campaign emphasizing modest fiscal, commercial law and currency adjustments as 4 percent inflation may outpace growth. The central bank predicts dinar stability against the dollar at around 110, and greater competitive scope for the half dozen private banks against dominant government lenders, although the Development Bank will continue to concentrate 90 percent of the portfolio toward small business. The Treasury bond and stock markets will be expanded, and insurance under two-thirds public ownership is a leading target for double-digit annual activity increases. In the Gulf the area is also ripe for international penetration as barriers ease and non-resident investors also snap up new sovereign bonds, where they have taken half of recent deals. In the past the pool was small and local banks as primary buyers rarely sold. Now the size is $250 million and large blocks can be purchased and traded with the entry of additional market-makers. Once uniform top investment grade ratings are more diverse, and repos have developed although long-term hedging products are still lacking. Tax-free financial zones have encouraged participation by foreign pension funds and asset managers, but private domestic peers have yet to establish a broader congregation for fixed income following according to industry experts.



Iran’s Goaded Guardian Grimace

2017 March 5 by

Iranian shares seesawed ahead of May presidential elections, with Rouhani seeking a second term, in the wake of venerated moderate Rafsajani’s death and a harder anti-nuclear and terror monitoring and sanctions approach by the Trump administration, which officially put Tehran “on notice” without detailing steps. In December the main US restrictions against prominent state banks and companies, particularly tied to the Revolutionary Guard, were extended another decade, and President Trump attempted to ban immigration from the country in an executive order on national security grounds initially overturned in court. The rising tensions coincided with a positive IMF Article IV report hailing “impressive” economic recovery since the joint agreement reviving global commercial and financial ties, although it cited “urgent” banking reform and stability needs. In the first half of the March 2016-17 fiscal year GDP growth was 7.5 percent but the non-oil component was just 1 percent. Inflation dropped to 9 percent but money supply expanded almost 30 percent with central bank credit support. The current account surplus doubled as a portion of output to 6 percent with FDI in the hydrocarbon, auto and telecom sectors, and exchange rate depreciation continues with the official-market rate gap at 15 percent and unification again postponed. The benchmark lending rate was lowered 2 percent to 18 percent against a reported double-digit bank bad asset ratio, while the fiscal deficit persists at 3 percent of GDP on high subsidies. Capital adequacy was below 6 percent in 2015 and is negative at state intermediaries, with profits crimped by steep funding costs battering stock exchange financial listings. Previously unregulated credit providers are now under the central bank’s sway and pending legislation would update the decades-old enforcement and resolution framework.

Medium-term growth should settle at 4.5 percent but unemployment currently approaching 15 percent will stay steep, the Fund believes. If poor relations with the US scuttle the nuclear pact, recession could resume, and the restoration of correspondent banking ties depends on incipient observance of FATF anti-terror and money laundering standards. The banking system is “fragile” with real estate and public enterprise exposure souring books. Bad loans take a decade to write off and must be fully provisioned, so they are rolled over indefinitely. Only private banks as a small category raise their own money competitively through deposits and interbank lines, and a new corporate insolvency code is required to aid restructuring. The central bank must slash directed credit and gain more autonomy with the elimination of government board seats and inflation-target adoption. The nascent domestic debt market can develop further after securitization of contract arrears, and financial sector initiatives could be underwritten by the sovereign Oil Stabilization Fund. For fiscal discipline cash transfers should be ended for the richest households, and structural reforms can boost the private sector with the low scores in a range of World Bank Doing Business measures. Female and youth joblessness are 20-30 percent and labor and regulatory distortions impede hiring. National accounts lack comprehensive and timely data for investors and multiple exchange curbs prevail beyond the two-tier rate subject to the Fund’s Article VIII approval to retain membership, as doubts linger over nuclear club aspirations.


Egypt’s Frayed Fraternal Bonds

2017 February 20 by

Egyptian stocks continued their comeback after 2016’s near 15 percent loss as a multi-tier $4 billion Eurobond, the first in two years, was three times oversubscribed from a diverse international investor base. The Finance Ministry conducting roadshows pressed fiscal and currency adjustment themes around the $12 billion IMF program, although public debt reduction may not materialize until end-decade according to its presentations. It was able to sell a 30-year piece at almost the same 8 percent yield as a coincident Argentina issue, ahead of planned $20-30 billion mega-placements by Saudi Arabia and Kuwait, where equities have also improved. Inflation blew out to almost 30 percent with de-pegging and tourism has yet to recover from security-related travel warnings despite the cheaper pound. The speculative sovereign credit rating has not budged, and President Al-Sisi continues to crack down on opposition as he tries to convince President Trump, after they struck a relationship during the campaign, to brand the Muslim Brotherhood a terrorist group cementing pariah status. The enthusiastic reception was in contrast with next-door Tunisia, also in an extended Fund arrangement, as it prepares a EUR 1 billion tap following a high-profile investment conference late last year featuring dozens of infrastructure projects. GDP growth should double to 2.5 percent this year, but the chronic budget deficit is above 5 percent with the civil service wage bill out of proportion with regional and global peers. In the US the outgoing Obama administration pledged to sustain economic and military assistance which has focused respectively on enhanced border controls and small business creation. A venture capital enterprise fund was launched early in the Arab Spring and recent emphasis has been in areas like collateral reform to enable easier bank borrowing as state-owned lenders await another possible round of recapitalization. Privatization of the government’s large industrial portfolio has been promised under consecutive IMF programs with limited success, and stock exchange performance has been flat awaiting breakthroughs.

The Gulf has brought excitement with Saudi Arabia’s appointment of an independent boutique underwriting adviser for a slice of Aramco, as the market further opens to outside institutional investors with a stronger regulatory body. The domestic sovereign wealth fund, with $200 billion in assets, will get a windfall from the sale after the central bank just transferred $25 billion under a mandate to increase allocation for local employment and higher return categories. Another external bond operation is in the works, likely in the form of no-interest sukuk, as Riyadh has cancelled around $20 billion in contracts since the oil price and foreign reserve slides. Kuwait was up 15 percent in January on the MSCI frontier index, as its big weighting drew support ahead of inaugural bond and economic diversification initiatives. Bahrain and Oman dipped slightly as the former continues to experience Shia-Sunni clashes, and the latter had a 2016 fiscal gap at almost 20 percent of GDP and resorted to overseas borrowing and its sovereign wealth stash. Gas exploration spending jumped 10 percent for the Kazzan field and defense outlays also rose as the ruling family tries to cap a wellspring of political tensions from discontented youth and migrant workers.


Israel’s Pesky Path Breaking Provocations

2017 January 10 by

Israel stocks were down slightly into year-end as the US refused to vote against a UN resolution condemning West Bank settlements as the outgoing Obama administration assigned both sides blame for the failure of Palestinian dual state peace talks despite Secretary of State Kerry’s shuttle diplomacy frenzy. The incoming Trump team criticized the action and named hard-line supporters as Ambassador and special Mideast envoy while proposing Embassy relocation to Jerusalem. Prime Minister Netanyahu ignored the call as he continued with expansion of housing developments as a way to firm his party’s ideological base and offer alternatives to unaffordable urban real estate which has recently featured as a major campaign issue. Consumption-driven GDP growth topped 3 percent through Q3, and that pace should extend into 2017 with unemployment at an historic low 4.5 percent. The current account surplus will also continue above 3 percent of GDP without export restrictions to the US with a 30 percent share, manageable oil import costs and minimal 5 percent foreign investor bond market inflow reliance. Deflation is over and the strong shekel should cap inflation at 1 percent without the central bank raising rates despite the Federal Reserve’s projected path. Geopolitics and wage pressure could upset the mix, but fiscal policy provides room with the deficit under 3 percent of GDP after a VAT cut. The “A” credit rating is intact with public debt at 60 percent of output, and commercial and assistance-related fundraising considered accessible over the medium term. The Prime Minister’s Likud Party remains relatively unchallenged with the opposition coalition in disarray, and he has survived serial scandals including an investigation into his wife’s alleged personal and official spending overlap. The Labor Party has yet to reconstitute as a strong rival, and its absence was noted by international dignitaries attending the funeral of longtime stalwart and President S. Peres.

Lebanon was up 5 percent on the MSCI frontier index through December as the lengthy impasse over a new president ended with 80-year old former general Aoun, a Christian, taking the post with dominant Shia party Hezbollah’s consent. Palestinian and Syrian refugees cannot vote and the latest census put the Christian share of eligible participants under 40 percent. President Aoun named security and economic overhaul as chief priorities, with the eventual intent of repatriating 1 million Syrians after the civil war finishes and remedying chronic electricity and public service deficiencies. Traditional Gulf visitors have shunned the beaches and nightlife with their own troubles and cross-border spillover of factional conflict resurrecting ghosts of the 1990s period. Morocco after demotion to frontier status was ahead over 15 percent as the ruling Islamic party was snubbed in favor of the insurgent Modernists promising faster growth than the current 1 percent and 100,000 jobs and state debt restraint. With an IMF backup facility, the government in power since the Arab Spring appointed by King Mohammed pared the budget gap to 4 percent of GDP with energy subsidy adjustment. Democracy activists assert that the monarch still exercises pervasive control and that family cronies are not held accountable for poor performance and scandal. They also note that phosphate giant OCP has entered deals with other authoritarian regimes including a $3.5 billion venture just announced with Ethiopia where breakaway province unrest has been quashed.



Iran’s Extended Sanctions Slant

2016 December 21 by


The Tehran Stock exchange index dropped 5 percent, as President-elect Trump won the contest with a signature vow to “rip up” the Iranian sanctions relief for nuclear monitoring accord with the US and five other countries. He also nominated an ardent congressional critic as intelligence agency chief who recently lambasted new Treasury Department guidance allowing possible participation in minority owned Revolutionary Guard indirectly-controlled ventures. Congress before adjourning to usher in the new administration passed a 10-year renewal of core bilateral sanctions still banning financial system dollar access. Iranian banks are to fall under stricter regulation with proposed new legislation as bad loans may be double the 15 percent of the total officially reported. A handful of second tier Asian and European banks have forged correspondent relationships, and an EU thaw in wholesale prohibitions against the big state-dominated lenders implicated in terrorist finance may have begun with Bank Saderat’s likely removal at Greece’s request. The Joint Plan of Action uncertainty overshadowed a $5 billion venture announced with France’s Total and China’s national oil company in the South Pars field, as OPEC members with Iran’s return to 2 million barrels/day announced production cutbacks to boost the world price. Real estate and telecoms have also drawn foreign interest as Vodafone entered a local partnership and malls and office towers are under construction with Gulf, Turkish, German and other international tenants. Germany’s Economic Minister visited in October with over 100 business executives in tow to focus on infrastructure in particular with rail, energy and metals contract signed. The auto sector was a major stock market stock market draw as France’s Citroen and a subsidiary of the giant Saipa conglomerate are in cooperation talks, as Renault negotiates on a direct government operation. The IMF forecast was upbeat for the fiscal year ending March 2017 with 4.5 percent GDP growth and 9 percent inflation, as it repeated calls for banking and exchange rate system cleanup. Financial listings continue as equity laggards, and the free-market rial/dollar rate has slipped below 35,000 earlier seen as a floor.

Egypt was down 20 percent on the MSCI index through November as the cost of a $12 billion agreed Fund infusion was free float of the pound, which careened from the official 8 to over 15/dollar in commercial trade amid continued shortage. An initial $2.75 billion was disbursed contingent on big fuel subsidy and civil service cuts and VAT introduction to contain the 10 percent of GDP fiscal deficit. Inflation could hurdle toward 20 percent with currency pass-through before consolidation, but tourism down 40 percent annually could benefit a cheaper destination aided by the lifting of source country travel warnings. However a bombing at Cairo’s main Coptic Christian church has again heightened security jitters as President Al-Sisi’s popularity rating dips toward 60 percent. He was one of the few foreign leaders who met with President-elect Trump while he was the Republican candidate as the new team in Washington may adopt a warmer diplomatic stance. Gulf ties have frayed as the GCC suspended $10 billion in annual aid to focus on its own budget and current account woes, and remittances as a key lifeline have also slipped and could spike current 15 percent unemployment which angry youth and democracy activists may no longer sanction.

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Saudi Arabia’s Wobbly Wellspring Tap

2016 October 26 by

Saudi Arabia’s debut external sovereign bond size surpassed Argentina’s return by $1 billion at $17.5 billion for this year’s and the historic record, and was four times oversubscribed for a 3.25 percent yield, just 25 basis points above peer investment-grade rated Qatar. The 30-year sold more than the 10-year maturity with the paucity of positive return long-term global alternatives, and 5 billion was immediately funneled to local banks to relieve liquidity strains. Officials signaled on the road show a $10 billion annual borrowing program, as they presented a 200-page prospectus detailing the 70 year oil reserve supply and economic diversification and rationalization under the King’s next decade transformation strategy. The proceeds will only cover one-third of the current 15 percent of GDP budget deficit with petroleum prices still under the $60 per barrel break-even, and central bank holdings have fallen $100 billion the past year to cover the bill as plans to cut public sector wages and flagship infrastructure projects are slowly applied. The state oil behemoth Aramco may float shares in the medium-term under the modernization and transparency campaign, and foreign institutional participation will soon be expanded, but the stock market was relatively unmoved by the existing and prospective securities wave and remains at a discount to the MSCI average. The iShares ETF is off double-digits as investors complain that both companies and the government continue to lag on account and information disclosure. Domestic interest rates at 2 percent are almost triple the 2015 level and could rise further with Federal Reserve tweaking under the dollar currency peg. Gradual energy and utility subsidy adjustments have ratcheted inflation to 5 percent on 1 percent GDP growth.

 UAE equities were ahead 5 percent on the MSCI index through mid-October, but banks are in a similar squeeze on hydrocarbon and fiscal retrenchment, with loans due to increase just 5 percent annually. Government deposits can contribute one-third of institution funding, and it has unveiled a big housing push to sustain momentum. The tougher climate sparked the First Gulf-National Bank merger, the largest consolidation since the 2008 crisis, which will still leave the ruling family in control. Bad loans are 5 percent of the total, and real estate and construction account for 30 percent of portfolios, and reported capital adequacy is 15 percent of assets, 3 percent over the minimum. The non-oil PMI manufacturing gauge is well over 50 and growth should come in around 2.5 percent in 2016, but consumer sentiment is lackluster in advance of scheduled VAT tax introduction.

Qatar shares were marginally positive with its rating superiority over Saudi Arabia and 2022 FIFA World Cup preparation moving full steam for 3 percent growth. Organizers are portraying the event as a diversification showcase beyond sports into education, finance and culture. Debt issuance will slow in 2017 as the projected budget gap halves to 2 percent of GDP with a new airport tax bringing in revenue. A $9 billion Eurobond went smoothly in May but may not be repeated next year as domestic banks provide lines. Al-Jazeera TV closed its US operation and followed other state entities in slashing jobs, including museums which could not compete with athletic attractions.


The Middle East’s Blowout Bellicosity Bill

2016 September 28 by

On the eve of the UN General Assembly’s special session on large refugee movements, the IMF updated its tally of MENA region civil and ISIS-related war costs, underscoring enduring conflict over one-quarter of the post-World War II period. Their underlying economic, political, social, demographic and religious causes are “deeply entrenched” and average episodes have lasted a decade. Currently 10 million refugees are in the area and mainly hosted in neighboring countries, with the Syria and Iraq influx swelling populations in Jordan and Lebanon and stretching budgets and infrastructure. Almost 2 million have reached Europe and 3 million are in Turkey and the immediate humanitarian emergency has morphed into a long-term development crisis requiring fresh donor funding and government policy reforms, according to the working paper. After four years of fighting Syria’s GDP is half the pre-war sum, inflation topped 300 percent and the currency is one-tenth the previous value, and growth has also been shaved 1 percent next door with housing expense skyrocketing in border zones. Total factor productivity has collapsed with the human capital toll in Syria alone at 6.5 million displaced and 500,000 killed, with 50 percent unemployment and 20-years reduced life expectancy. The statistics from Iraq and Yemen are equally “dramatic,” with their respective poverty rates at 25 percent and 50 percent. In Lebanon informal labor force entry depressed wages and arrivals overwhelmed public services with only one-third of refugee children able to attend school. A Syrian think tank estimates physical damage near $150 billion, a multiple of 2010 GDP, and in Libya oil output plunged to one-quarter of capacity with shutdowns and blockades, leaving a 45 percent of GDP current account deficit from former surplus. Jordan’s exports to Europe have suffered, and crime and insecurity have spread throughout the region, and affected tourism in Egypt and Tunisia outside the immediate frontlines. Human traffickers operate large smuggling rings diverting border protection, and FDI has been unable to return to pre-Arab Spring levels. Financial sectors have been hollowed out with deposit runs, asset crashes and capital flight, and the Syrian bad loan ratio was already 35 percent as of the most recent 2013 figures.

Social cohesion and institutional quality measures have slipped with only small minorities “trusting” the political and economic systems in opinion surveys. Central banks and finance ministries have lost authority and tax and payments network control, and international banking practice has further eroded their capacity by severing suspect correspondent relationships. Fiscal deficits have “ballooned” to averages above 10 percent of GDP, and monetary policy has been forced to step into the breach with government financing. International reserves are almost exhausted in Yemen and were halved in Libya as a portion of imports. Even with peace agreements, history shows the conflict cycle often repeats in the near-term and debt distress and fragility linger, with recovery taking decades. State intervention in wartime circumstances is hard to unwind, and reintegrating refugees is slow with the tendency toward prolonged absence and desired resettlement abroad. Working rights and private sector strengthening are important pillars of successful strategy the World Bank and IMF plan to support with increased technical and concessional assistance, along with possible debt relief aid the area’s unrelieved misery.