The Middle East’s Mechanical Morose Murmurs
Mideast stock exchanges were depressed even before general market selloffs as MSCI’s decision to finally graduate the UAE and Qatar to the core universe was offset by Morocco’s frontier demotion and Egypt’s teeter again on that precipice on liquidity and foreign exchange squeezes. The junior party in the Islamist-headed coalition has threatened to leave over food and energy subsidy rollbacks demanded under the IMF accord as the Q1 fiscal deficit came in at 2 percent of GDP. The support takes 15 percent of public spending and the government plans to redesign programs to target the poorest. Economic growth may almost double this year to over 4 percent on agricultural rebound, while external accounts continue to languish from the Eurozone crisis. Phosphate export prices remain low, but FDI recently increased on a large dairy firm deal. The central bank has maintained the 3 percent benchmark rate on subdued inflation and championed a securitization law for state and corporate sukuk issuance. Local mutual funds with $30 billion in assets are eager for the instruments and foreign investors after subscribing a late 2012 Eurobond should join if the BBB rating stays for the new class. An initial placement program is set at $1.5 billion as a larger package was also signed with the Islamic Development Bank through mid-decade designed to fall within the 60 percent of GDP self-imposed official debt limit.
Jordan and Lebanon were likewise off 5 percent through June as the former received a second $400 million installment of its Fund standby and the latter ended a political impasse with a compromise Sunni prime minister. King Abdullah unveiled his cabinet several months after parliamentary elections featuring loyalists and technocrats as he sought Western and Gulf assistance to handle the influx of 500,000 Syrian refugees. The US also agreed to guarantee a planned external bond as in Tunisia’s previous case in a $1-2 billion range to redress the almost 15 percent of GDP current account gap. Repeated disruption of Egypt’s Sinai gas pipeline has been replaced by expensive imports as regional energy cooperation is slim despite a $4 billion Israeli-Palestinian venture scheme announced by former British Prime Minister Blair in critical sectors. Lebanon’s recession lingers with the conflict next door on a disappearing primary budget surplus and double-digit inflation. Bank deposit growth is at a 5-year low as another round of polls is due soon which could extend the traditional sectarian and ideological standoff.
Israeli shares have stumbled on popular protests against austerity moves to restrain defense and social outlays amid a 4.5 percent of GDP fiscal deficit as the debt restructuring saga of the Dankner family conglomerate weighs on a cross-section of major listings. The tycoon controls IDB but also obtained relief from Bank Leumi on his leveraged empire before widespread business and financial community criticism forced a harder line. In outgoing gestures central bank chief Fischer exhibited interest and exchange rate activism even though the exchange’s MSCI Europe bid was halted.
