Arab Debt’s Odd Oasis Spotting
Egyptian dollar bond yields drifted toward their 4 percent low as officials announced a first post-Arab spring issue in April upon closing of the Sharma el Sheikh donor and investor conference. The sovereign rating is due to return to the single B category as Gulf allies Saudi Arabia, Kuwait and the UAE will double their post-Morsi ouster support with another $10 billion at the event according to reports. GDP growth will be 4 percent this year and initial fiscal and monetary policy changes by President El-Sisi’s team have been endorsed by international agencies and private sector analysts. The government will point to subsidy cuts and the pound’s controlled devaluation at the mid-March sessions profiling 35 specific energy and infrastructure projects to attract $60 billion in desired FDI through end-decade. With public debt at 85 percent of GDP and tourism still weak “new commercial partnerships” are the regime’s mantra even as old foreign exchange and labor rules prevail. In a sign that Mubarak era business ties are no longer shunned, Orascom Construction will relist on the Cairo stock market after relocating to Amsterdam to avoid a tax fight. MENA-focused private equity funds like Abraaj are again touting prospects and the IMF may be tapped for technical assistance as the central bank head recently acknowledged renewed lending “appetite” as well in the aftermath of a positive Article IV report. Lebanon in late February managed its biggest ever $2 billion Eurobond at a 6-percent plus yield despite debt/GDP at 135 percent and stalling 2 percent growth. Electricity shortages remain widespread and a requirement for party unanimity has left the presidency vacant for months. Lebanese banks and expatriates were the main buyers in the face of a recent Moody’s downgrade on Syrian and ISIS war spillovers. One million refugees have crossed the border and internal displacement may now be added with jihadi claims of territorial control. Tunisia joined the bond queue in an oversubscribed $1 billion offer without outside bilateral guarantees after peaceful elections embedded a secular-Islamic party coalition. The trade union federation is a key voice and demands more spending to address youth unemployment and rural poverty. Wage protests and strikes have hobbled 3 percent growth at half the pre-revolutionary norm as government debt has doubled to 50 percent of GDP. The Islamic Development Bank will support a forthcoming sukuk and the US Chamber of Commerce hosted an entrepreneurship gathering in March that featured venture capital successes.
In Iran the stock exchange has been the geopolitical sentiment barometer in a funk over the drawn-out nuclear enrichment negotiations with the US, Europe and Asia representatives. The new budget predicts 2 percent growth and 15 percent inflation with the rial market rate currently at 35000/dollar. Foreign investors have visited Tehran in advance of the end-March deadline and a dedicated ETF has been launched but further sanctions and oil price turnarounds may be a near-term mirage in the view of industry and diplomatic observers.
