The Arab Spring’s Eternal Election Season

Middle Eastern shares were buoyed as Arab Spring bellwethers Egypt and Tunisia headed into final phase elections four years after ousting single party dictators with economic indicators bottoming and external aid packages back on track. Egypt’s almost 30 percent gain through October led the core universe with parliamentary contests likely before year-end, with Islamic groups due to boycott and seats allotted from approved party lists. President Al-Sisi declared a state of emergency in the Sinai after attacks on soldiers, as his terrorist hard line has resumed international backing from the US and Europe with ISIS fears. Secretaries of State and Treasury Kerry and Lew travelled to Cairo and praised initial subsidy changes and other economic reforms as the IMF may consider a $10 billion program in the context of a global coordinated effort centered on Gulf support which was just boosted $5 billion. A $500 million Qatar loan was repaid and a $700 million Paris Club payment is soon due but reserves have firmed above $15 billion with tourism improvement and capital account inflows. Inflation is down to single-digits on near 3 percent growth but the fiscal deficit still exceeds 10 percent of GDP and the pound has been stuck at 7.15 to the dollar despite exchange control relaxation. The central bank is monitoring large government securities exposures at leading banks as the stock exchange is planning to lure bond trading. Private equity houses have assembled smaller deals as billionaire Orascom head Sawiris announced his intention to re-invest domestically after settling a $1 billion tax dispute dating from the Mursi regime. Next door Libya’s collapse has sent wealth into both real and financial assets as officials are reported to be helping former army factions there in battling militias. In Tunisia the legal Islamist party came in second in legislative polls behind a secular movement, reverting the MSCI result to positive as the interim technocrats in charge managed to foster public-private sector cooperation. State bank cleanup remains a key impediment to improving 3 percent growth and 25 percent youth unemployment and is designed to accompany debt and equity market development under EU and World Bank technical assistance.

Morocco’s King has devolved more power to parliament as officials are pushing Casablanca as an offshore pan-African finance hub. Budget consolidation has advanced with incremental fuel subsidy cuts and 3 percent GDP growth is again in sight for 2015 with decent agricultural and Eurozone conditions with the MSCI component up 5 percent. Jordan in contrast has fallen slightly with the Iraq-ISIS conflict fallout on energy, tourism and refugee influx, with donors less amenable to closing the 12 percent of GDP current account deficit. Hard currency deposits at one-fifth the system have not spiked with the upheaval, as heavyweight exchange listing Arab Bank strives to reassure accountholders and investors after an adverse New York Court decision on facilitating terrorist funding during a past grim season.