final at a glance

2020THE REGIONAL OUTLOOK

AT A GLANCE

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About Multiples

Private Equity

We are a boutique private equity and investment banking firm, based out of Dubai, Cairo and Nairobi, licensed by the Registrar of Compa-nies in the DIFC and under the Egyptian and the Kenyan Investment Laws.

Through Dubai office, we invest directly in different focused investments in the Middle East and Africa under specific sectors and areas of business, which include services, real estate, construction, healthcare and financing solutions.

Investment Banking

Through Cairo and Nairobi offices, we offer various financial advisory services for different clients in diversified sectors across the region. We focus our efforts on structuring and placement services for successful brown field projects as well as promising green field project in selected sectors. We strategically collaborate with global business associates under a structured platform ‘Multiples Associates Platform’ that further widens our presence.

Fundraising Desk

Our Fundraising Desk is connected to a network of more than 1,100+ contacts in 850+ institutions in the region and globally, with the highest coverage for the Middle East, North and East Africa.

Research Center

Our Research center aims to keep our stakeholders and network of investors well informed about the economic landscape and the different market dynamics in the key markets of MENA and East Africa through periodic reports.

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in the MENA region also plays an important role in affecting global oil supply. This comes in light of the attacks directed at Saudi Arabia’s Aramco oil facilities, which are considered the largest facilities worldwide, back in September 2019. Threats of further attacks were renewed when the Houthis announced attacking the Saudi oil facilities again in the end of January, but Saudi officials announced that the attacks did not reach their targets. This is in addition to the political unrest in Iraq and blocking oil production in important fields in Libya. Such developments could contribute to oil supply disruptions in 2020.

The main threat to the country’s growth was introduced by the outbreak of the Coronavirus that resulted in more than 1,100 deaths. Globally, more than 43,000 have been infected and 7,333 people in a serious condition till Monday 11th

February 2020. Noting that virologists around the world and doctors in Wuhan believe that those numbers are in fact much higher. The coronavirus mainly causes diseases in mammals and birds. However, in humans, the virus causes dramatic respiratory infections. The outbreak started in Wuhan city which is considered an important industrial and transport hub in China and this typically affected the country’s economic prospects. On the international level, such health emergency (if not properly and quickly contained) could temporarily disrupt global supply since China is the provider of approximately 20% of the world’s manufacturing output in addition to tourism levels worldwide, especially in China’s neighboring countries. It is expected that the coronavirus will generate more dramatic economic waves that will affect more the global commodities markets and will disrupt the supply networks which is the backbone of the global economy.

Key Regional Issues

The current year started with various important events that will affect the performance of the global economy as well as the MENA region that is still facing intensified political instability in Libya, Yemen, Iraq and Syria. In addition, the US presidential elections by the end of 2020, the future of the trade deal between the US and China, the OPEC’s decisions with regard to oil production cuts along with launching “Dubai Expo 2020” will also play detrimental role in shaping economic trends over the course of 2020. The projections of the IMF point to an increase in global economic growth to reach 3.3% in 2020 compared to 2.9% in 2019 and will further increase in 2021 to reach 3.4%. Noting that several factors will influence growth dynamics in 2020 which will be presented in this section.

Trends in Oil Prices

Coronavirus and Economic Slowdown in China

The Chinese economy recorded the lowest economic growth rate in 2019 when compared to the country’s performance throughout the previous three decades considering the trade tensions that escalated that year along with the global economic slowdown.

In 2020, the economy’s growth will slow down to 6% compared to 6.1% in 2019. In addition, this rate will further decrease to 5.8% in 2021, according to the IMF projections. Noting that this economic Chinese slowdown may affect significantly the flow of Chinese investments to the Arab region.

The latest projections by the EIA pointed to mild increase in Brent Crude oil prices in 2020 to reach 64.83 USD compared to 64.36 USD in 2019 and is expected to further increase to 67.53 USD in 2021.

Oil prices movements in 2020 are likely to be influenced then shaped by different and prominent supply and demand forces as follows:

The organization’s members agreed on cutting oil production by 0.5 million bpd in December 2019 till March 2020. Such cuts are projected to be extended in the upcoming meeting, given the increase in production by Non-OPEC members in 2020 and given the decline in China demand where further cuts of about 0.6 million bpd are currently under negotiations between OPEC members.

Forecasts

This economic slowdown in China along with the threats associated with the Coronavirus will affect the MENA region on important fronts:

Some countries in the region-imposed travel bans to China, including Saudi Arabia, Iraq and Oman, while other countries advised their citizens against traveling to China. Moreover, Tourism in UAE where the Chinese account for about 6% of its total tourists will typically be affected by such economic slowdown, especially in Dubai which is well-known for being an important tourism center for Chinese visitors.

How will this impact the MENA region?

Travel & Tourism Oil prices & Demand

OPEC production cuts

The Energy Information Authority (EIA) indicated in its latest energy outlook that the US will become a net oil exporter in 2020. Moreover, the Authority projected an increase in the US oil production by 1.06 million bpd in 2020 to reach 13.3 million bpd, yet such increase will decline to 0.4 million bpd in 2021 owing to curbing spending on new drills by the country’s producers. Furthermore, there is an expansion in oil production in Non-OPEC members including Norway, Brazil and Canada.

Oil Production in the US

OPEC forecasts for global oil demand pointed to an increase from 99.8 million bpd in 2019 to approximately 101 million bpd in 2020. This projected increase was influenced by the expected surge in global economic growth as mentioned above. However, the economic slowdown in China and the Eurozone could negatively weigh on such increase in demand.

Global Demand

Political instability

2 3

Since China imports about 40% of its oil purchases from the MENA region countries, the health emergency and its economic repercussions have affected oil demand (estimates point to 20% decline in oil consumption) and led to a decline in oil prices which reached 55 USD (18% below the EIA forecast) and even below 50 USD for the first time since January 2019. This could lead to downward revisions in oil price forecasts in 2020 and adversely affect the budgets of GCC countries which are based on higher oil prices, especially those of Saudi Arabia, Iraq and Oman which are among the top oil exporters to China.

The Brexit came at a point when the Eurozone is suffering from economic slowdown where GDP growth recorded only 0.1% in Q4-2019 compared to 0.3% in Q3-2019. Moreover, growth forecasts by the European Central Bank (ECB) were revised down for the Eurozone to be only 1.1% in 2020 considering the economic contraction in France and Italy along with rising trade disputes with the US administration.

Key Regional Issues

On the Domes tic Front

A considerable number of Mega Infrastructure projects are currently established in the MENA region especially in UAE where 16 projects and attractions (among which the Abu Dhabi International Airport’s Midfield Terminal, Al Qana National Aquarium and the Royal Atlantis resort and residences) are planned to be constructed in 2020. This is in addition to a smart metering electricity project and Solar plants in Saudi Arabia as well as East Sitra Housing Development Project in Bahrain. Another Mega project signifies the cooperation between Egypt and Saudi Arabia which is the electricity interconnection project that is expected to be signed in May 2020.

The increase in economic growth is triggered by governments’ efforts to improve the business climate where four countries in the MENA region (Saudi Arabia – Bahrain – Kuwait – Jordan) were listed among the top 10 improvers in “Doing Business Report 2020”. This is in addition to the significant increase in gas production in Qatar and Oman along with momentous spending in UAE and Qatar to support “Dubai Expo 2020” and “World Cup 2022”. Moreover, Saudi Arabia will host the upcoming World Economic Forum's Middle East Summit which will help to create new investment opportunities in the country where special emphasis is currently paid to boost private sector activity and implement the cornerstones of Saudi Arabia vision 2030.

A Brexit deal was finally passed in the European parliament and the United Kingdom was officially the first country to leave the European Union last January 2019. During UK transition period, the country will stick to the laws and regulations of the EU despite officially leaving its institutions. Moreover, UK and EU worked to reach a planned free trade agreement with the rest of the union members till the end of 2020. Despite the positive implication that a deal is finally reached after a process that lasted for a longtime, however, the exit implies some business uncertainty in the absence of a trade framework with the EU along with costing the UK about 262 BN USD by the end of 2020, according to Bloomberg.

With Britain exiting the European Union, the Kingdom will work on strengthening its trade relations outside Europe along with establishing the European Free trade agreement. This implies an expected increase in the UK business in the MENA region, especially in the Gulf countries where government reports in the UK identified 38 BN USD worth of potential investment arenas in the GCC by the year 2021. Such investment opportunities have the highest potential in the healthcare and defense sectors and could further expand considering the GCC countries' efforts to diversify their economies. This also goes along with the affirmation of the governments heads of the region to maintain their strong relations with the UK post Brexit.

How will this impact the MENA region?

The growth rate in the MENA region is projected to increase from 0.6% in 2019 to 2.5% in 2020 and 2.9% in 2021, according to the World Bank Economic Outlook. However, the rate recorded for the years 2019 and 2020 encountered a downward revision by 0.8% to reach the above-mentioned rates.

The Mergers and Acquisitions activity witnessed considerable growth in the MENA region in 2019 by 160% valued at 120 BN USD and is expected to continue in 2020 in light of a general interest by businesses worldwide in engaging in further M&A activity, according to surveys by Ernest & Young. Regionally, this goes along with an expected deal by UAE Dana Gas company regarding its Egyptian assets in addition to Abu Dhabi's ADNOC deal regarding its natural gas pipelines

Finally, IPO activity is also forecasted to significantly increase to 40 BN USD in 2020 compared to 2 BN USD in 2019, backed by the retrospective listing of Aramco in MSCI emerging markets index.

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Brexit Outcome and Economic Repercussions

Egypt

Egypt raking on the World Bank’s Doing Business 2020 report has advanced six places, ranking 114th out of 190 countries compared to 120th place in 2019. The report monitored the Egyptian government’s implementation of several reforms to improve the investment climate and simplify procedures in four areas.One of those areas was the establishment of companies, a category in which Egypt has advanced 19 ranks globally, ranking 90th up from 109th in last year’s report. Furthermore, Egypt advanced on the electricity access index by about 19 ranks to stand 77th, up from 96th last year. Egypt also advanced on the index of the protection of small investors, jumping 15 positions from 72 to 57 due to legislative reforms related to the indicator out of 192 countries.

Source: Central Bank of Egypt (CBE)& International Monetary Fund (IMF)

Macroeconomic Indicators

2015 2016 2017 2018 2019 2020 E 2021 E

4.4% 4.4% 4.2% 5.3% 5.6% 5.9% 6.0%

9.1%9.5%

10.0%11.4%

11.8%12.4%13.1%


Foreign Direct Investment (FDI)GDP Growth Unemployment rate

2015 2016 2017 2018 2019 2020 E 2021 E

Source: Central Bank of Egypt (CBE& International Monetary Fund (IMF)

Inflation Rate

10.4% 10.2%

23.3%20.9%

14.0%11.4%

10.0%

Budget Deficit

The Egyptian government is targeting to be viewed as an attractive investment hub in the future by implementing bold economic reforms such as the phasing out of petroleum subsidies, taming inflation, and maintaining a competitive exchange-rate policy. The measures such as the new investment law with the one-stop-shop to facilitate set up and the various incentives it offers in free zones had been important to changes in the balance of payments, drops in yields on treasury bonds, and levels of interest shown by investors in international bond issuances. The government is tending to investment in less-developed regions to enhance living standards. Egypt could attract more FDI to reach around 8.5 BN USD in 2019/2020 and 9.6 BN USD in 2020/2021 compared to 7.71 BN USD in 2018/2019. New venues for investment need to be prioritized in areas such as the services sector. Business-process and knowledge-process outsourcing, and IT-enabled services are good options for Egypt because it has a strong edge in terms of human capital.

Government policy will seek to balance the goal of achieving fiscal sustainability as evident by the continued reduction of the budget deficit as a share of GDP since the start of the IMF backed reform program with containing public discontent over the ramifications of economic reform through supportive transfer payments for the less well-off. The decision to increase minimum levels for public-sector wages and pensions will add to the fiscal burden and slow the pace of consolidation. However, the public finances will still be strengthened in 2020/2023 by rising tax revenue, in tandem with continued robust of GDP growth. The government will gradually divert spending away from subsidies towards public services such as healthcare and education. Also, it will rely primarily on VAT to generate tax revenue. It is expected that the budget deficit will decline to 2.0% of GDP in 2020 compared to 7.2% in 2019 and 4.3% of GDP in 2021, as a result of rising tax revenue, lower subsidy spending, lower oil import costs and as export growth outpaces import growth.

According to the IMF forecasts, the unemployment rate is expected to decrease reaching 9.5% by the end of 2020 compared to 10% in 2019 and to record further decreases in 2021 reaching 9% due to the huge job rich investments to implement projects that are labor intensive in order to decrease the unemployment rate and to have a positive increase concerning the labor force participation According to the post loan IMF revised meetings, Egypt will need to accommodate an estimated 3.5 million new entrants to the labor market over the next five years, in the context of already high youth unemployment and low labor force participation. Moreover, the IMF added that the growing labor force presents a tremendous opportunity for faster growth, but only if it encounters a strong and vibrant private sector that can productively employ those workers.

Real GDP growth is expected to further increase in 2020 reaching 5.9% and 6.0% by 2021 compared to 5.6% in 2019. These positive increases are driven by the continued strengthening of the tourism sector and exports, by large public construction projects such as the building of the New Administrative Capital, natural gas production from the Zohr field and other new discoveries, the re-engagement of private investors following the recent trend of interest rate cuts, and the continued implementation of business environment reforms and prudent macroeconomic policies. Moreover, it is worthy to mention that tourism revenues in particular recorded historically high levels due to the successful implementation of the tourism reform program reaching 12.6 BN USD in 2019 and expected to reach around 15 BN USD by 2020. The quality and sustainability of Egypt growth improved substantially, as private and public investment contributed almost 45% of growth in 2019 and one third was driven by net exports.

Is expected to decline reaching 11.4% by the end of 2020 compared to 14% in 2019. It is also expected to further decline reaching 10% by 2021. Overall, average annual inflation should ease, returning to single digits as the pound appreciates against the US dollar, falling to 7.5% in 2023. Egyptian mone-tary policy is focused on achieving its medium-term objective of bringing inflation to single digits. Core inflation appears to be well contained, but the Central Bank of Egypt (CBE) should remain cautious until disinflation is firmly entrenched. Furthermore, exchange rate flexibility remains essential to improve resilience to shocks and preserve competitiveness.It is worthy to mention that the monetary policy stance is expected to remain appropriately restrictive to contain possible second round effects from increases in fuel prices, but sustained deflation would provide scope for further reductions in the CBE policy rate. Inflation rate continues to be driven to a large extent by supply side factors that impact domestic food prices, with core inflation relatively well contained. If inflation rate pressures reemerge, the CBE should stand ready to tighten monetary policy as needed.

Egypt macroeconomic situation has improved remarkably since the start of the International Monetary Fund (IMF) program. The critical macroeconomic reforms, implemented by the IMF in order to correct significant external and domestic imbalances, have been successful in achieving macroeconomic stability. Growth has accelerated; external and fiscal deficits have narrowed; international reserves have increased; and public debt has been put on a firmly downward trajectory. Unemployment rate has declined to its lowest level in over a decade, while social protection was strengthened to ease the burden of adjustment on the poor.

Inflation Rate

GDP Growth

Unemployment Rate

6 7

Saudi Arabia

Saudi Arabia recorded the highest improvement in the annual ranking of the “Ease of Doing Business 2020” in 190 countries. It jumped to the 62nd place, from 92nd in 2019 raising its doing business score to 71.6 compared to 63.5 in the 2020 report, making it the world’s top improver. It carried out a record eight reforms. The kingdom strengthened access to credit by introducing a secured transactions law and an insolvency law. It also established a one-stop shop for company incorporation. Other developments include an online platform for certification of imported goods and an upgrade in infrastructure at Jeddah Port.

Source: Saudi Arabia Minis try of Finance


2015 2016 2017 2018 2019 2020 E 2021 E

4.1% 1.7% -0.9% 2.0% 0.9% 2.3% 2.2%

5.84%

2021 E

2.3%

5.82%9.55.896.0% 5.92%6.0%5.6%5.6%Macroeconomic Indicators

Foreign Direct Investment (FDI)

GDP Growth Unemployment rate

2015 2016 2017 2018 2019 2020 E 2021 E 2022E

Source: Saudi Arabia Ministry of Financeand the International Monetary Fund (IMF)

Inflation Rate

2.2%

3.5%

-0.2%

2.5%

-1.1%

2.0%2.0%

1.8%

Budget Deficit

In an effort to attract more FDIs to Saudi Arabia, the government has introduced reforms permitting 100% foreign ownership in multiple sectors. The reforms are not only designed to draw more investments, but it will drive M&A activity and FDI due to the greater pool of foreign purchasers. Saudi Arabia FDI inflows reached 6.3 BN USD in 2019 compared to 4.5 BN USD in 2018 and expected to further increase in 2020 reaching 7.2 BN USD. This increase is due to the addition of Saudi Stock Exchange (Tadawul) to the MSCI Emerging Markets Index in August 2019 which is expected to enhance the country’s market efficiency. With the volatility in oil prices anticipated to decrease in 2020, it is expected that Saudi Arabia will continue progressing towards achieving its 2030 Vision objectives.

The budget deficit in 2020 is expected to reach 187 BN SAR (49.84 MM USD) which accounts for 6.4% of the estimated 2020 GDP, compared to 131 BN SAR (34.92 BN USD) which accounts for 4.7% of GDP in 2019, owing to a higher rate of projected revenue decrease versus the expenditure in 2020. According to Saudi Arabia Ministry of Finance, the deficit increase can largely be attributed to the oil price volatility and the turbulence in the global economy that faces risk from trade wars. On the other hand, the government is continuing its effort towards reducing the budget deficit to achieve the target of fiscal balance by 2023.

Saudi Arabia citizen unemployment rate decreased to the lowest in more than three years as the Kingdom’s non-oil economy recovers reaching 0.9% in 2019. However, the unemployment rate is expected to increase reaching 2.3% in 2020 noting that improvements in employment have continued to lag a rebound in non-oil growth. This is partly a reflection of persistent weaknesses in business confidence, worsened by a string of fiscal reforms such as new taxes and fees. Moreover, the unemployment rate is strikingly high for Saudi women with a bachelor’s degree, but there are large numbers of both male and female bachelor’s degree holders, and a substantial percentage of them are unemployed. It is worthy to mention that Saudi Arabia government is trying to create jobs for nationals in a private sector dominated by foreign labor.

Preliminary estimates indicate real GDP growth to increase reaching 2.3% in 2020 compared to 0.8% in 2019 which was affected by the attacks on Saudi oil facilities in September 2019 causing a significant supply disruption. According to Saudi Arabia Ministry of Finance (MOF), this increase is a result of relatively stable oil prices, implementation of Vision 2030 programs, and increased spending on infrastructure. Noting that estimates of real GDP growth for 2020 have been projected downwards due to oil market developments and the decrease in oil production as a result of the extension of OPEC+ agreement.

Saudi Arabia inflation rate is expected to be steady in 2020 reaching 2% compared to -1.1% in 2019 despite that the economy is experiencing a deflationary period at the beginning of 2019, according to a recent report by KPMG Al Fozan and Partners. The report showed that the VAT is expected to cause minimal one-off price increase in the short run; however, in the long run, VAT is not likely to cause a significant or sustainable increase in underlying inflation. Meanwhile, small and medium-sized enterprises (SMEs) experienced a moderate impact by VAT due to high compliance costs, and due to concerns regarding VAT neutrality. In response, the government introduced the “Private Sector Stimulus Plan” to stimulate growth, remove any potential obstacles and enhance private sector confidence. The government is also planning to increase the capital expenditure and focus on its fiscal policy by 2023.

The government continued its efforts to implement medium and long-term structural reforms aimed at diversifying economic activity and achieving fiscal sustainability in light of Saudi Arabia 2030, while promoting the private sector’s leading role as the main driver of economic growth and job creation. Thus in particular, the government will focus on developing and increasing the non-oil GDP growth to achieve its 2020 goal. Moreover, Saudi Arabia government plans to advance the privatization progoram by allowing the transfer of assets ownership, as well as assigning the provision of specific public services to the private sector.

Inflation Rate

GDP Growth

Unemployment Rate

8 9

With its pioneering rank and scores in the "Doing Business", in addition to its outstanding position as a promising destination for FDIs, investors in the UAE perceived the highest level of business optimism according to surveys by the Swiss Bank UBS published in March 2019. FDI inflows represented about 3.5% of GDP in UAE in 2019 compared to 2.9% in 2018. Government officials announced that they are targeting an increase in this figure to reach 5% of GDP in 2020.Moreover, Dubai managed to attract 14.9 BN USD worth of FDIs from the beginning of 2019 till Q3-2019, according to the latest numbers released by Dubai FDI Monitor. This figure is projected to increase over the course of 2020 and 2021 due to the planned visits to the US, Australia and China that are targeting the promotion of Dubai’s competitive investment opportunities, in addition to hosting the "Foreign Direct Investment Forum" in Dubai in 2021.

United Arab Emirates (UAE)

UAE rank in the “Doing Business report 2020” recorded a decline to stand at 16th globally compared to 11th rank in the previous year. However, the country continued to maintain its leading position in the MENA region by implementing key reforms to further increase the Ease of Doing Business as well as take the lead on the global level. In addition, Moody’s and S&P credit rating agencies reported a stable outlook for UAE banking system along with a credit growth of 4% in 2020. Finally, signs of a possible recovery in the slowing down real estate market are emanating as a result of the potential opportunities offered by Dubai Expo. However, many experts point to an expected increase in supply that will not be associated with a boost in demand in 2020.

Foreign Direct Investment (FDI) 2015 2016 2017 2018 2019 2020 E 2021 E

Source: World Bank Economic Outlook October 2019& World Bank Data

Inflation Rate4.1%

1.6% 2.0%

3.1%

-1.8%

1.3% 1.5%

Budget Deficit

UAE announced a federal budget amounting to 16.6 BN USD for 2020 which is the largest in the country’s history. The Ministry of Finance announced zero deficit for the new fiscal year 2019/2020, compared to a deficit of 1.3% in 2018/2019. However, the World Bank economic outlook recorded minor deficits of 1% and 0.6% for 2020 and 2021 respectively. About one third of the budget will be dedicated to social development along with government plans to promote spending on education through various partnerships with the private sector. The new budget marked what Government officials is labeled as the start of "The Development Decade".

It is forecasted to increase reaching 2.6% in 2020 compared to 1.8% in 2019 and is expected to further increase to 3% in 2021, according to the World Bank projections. The IMF pointed to a recovery in the country’s economic performance in 2020 that is driven by launching Dubai Expo 2020 (which is expected to contribute by 1.5% increase in GDP growth and to bring in 25 million visitors) in addition to a 3% projected growth rate in the non-oil economy in 2020. The main challenges facing growth in UAE include: maintaining the prominently achieved growth in the non-oil economy after Dubai Expo, increasing the “below than required” savings’ level for the sake of maintaining wealth for the upcoming generations along with reviving the slowdown in the real estate sector. On the external level, OPEC production cuts that are put in place till March 2020 along with the expected economic slowdown and trade tensions represent the main challenges.

Both the World Bank and IMF projected an increase in inflation rate to reach 1.3% in 2020 and 1.5% in 2021, compared to a negative rate of 1.8% in 2019.The deflation encountered in 2019 was due to the slowdown in the real estate sector along with a decline in the demand of non-residents owing to the appreciation of the USD. However, inflation rates are expected to increase in the upcoming years due to the planned introduc-tion of excise taxes on sugary drinks and e-cigarettes in 2020. More impor-tantly, inflation is also expected to increase in 2020 and 2021 due to the projected boost in demand amid Dubai Expo which will last from October 2020 to April 2021.


UAE has maintained its pioneering role in the arena of Doing Business in the MENA region and will maintain this role through hosting major investment related forums and events including the upcoming “Dubai Expo” in 2020 and the "Foreign Direct Investment Forum" in 2021. In addition, special attention is currently given to advancing education and social development in the country, as announced in the budget of the current year. This goes along with efforts to promote the non- oil economic activities and employment of the Emiratis in different sectors.

Inflation Rate

GDP Growth

It is expected to increase to 3.2% and 3.1% in 2020 and 2021 respectively, compared to 2.6% in 2019. It is worth noting that the Central Bank of UAE reported that total employment growth recorded a modest increase of 1.1% in Q3-2019 compared to 1% growth in Q2-2019 with 40,000 newly created job opportunities in the latter quarter. In a related context, the cabinet announced several guidelines to support "Emiratization program" which shall create 20,000 job opportunities in key sectors for Emiratis along with providing those who are active in the labor market with strong training programs to help them get qualified for key positions in ministries and government authorities. Moreover, reports released by the recruitment consultancy “Cooper Fitch” projected a stability in salaries across different sectors in UAE. However, some sectors will witness an increase in salaries of 2% (manufacturing, technology, telecommunication sectors) and 5% in the strategy sector. In a related context, Dubai government officials announced that the salaries will witness an increase of 10% for civil servants in 2020.

Unemployment Rate

10 11

Source: World Bank Economic Outlook October 2019 & world bank data


2015 2016 2017 2018 2019 2020 E 2021 E

5.1% 3.0% 0.5% 1.7% 1.8% 2.6% 3.0%

3.1%3.2%2.6% 2.6%2.5%

1.6%1.8%


Jordan net FDI is expected to increase reaching 4.4% and 4.9% out of GDP in 2020 and 2021 compared to 3.6% in 2019. Investment growth is expected to be moderate due to a major reduction in public capital expenditures and low inflows of private investment. Noting that the current account pressures are projected to ease gradually as trade balance improves through recovery in exports and decline in energy-related imports. Key enabling factors are the re-opening of the Iraq border and associated trade and invest-ment agreements, and faster-than expected engagement by domestic companies in the EU agreement. FDI, multilateral, bilateral, and private debt-creating flows are expected to be the main financing sources.

Jordan

For the first time, Jordan has been selected this year among the top 3 business climate reformers and improvers in the MENA region with three major reforms: Introducing a new secured transactions law, amending the insolvency law and launching a unified, modern and notice-based collateral registry. Jordan unprecedentedly jumped 29 ranks in the 2020 Doing Business rankings reaching 75th out of 190 economies compared to 104th in 2019 report, and this was due to a series of economic reforms enacted last year. This marks Jordan's highest ranking in over a decade. On the other side, Jordan is witnessing high unemployment and inflation rates due to the slow economic growth figures.


2015 2016 2017 2018 2019 2020 E 2021 E

Source: International Monetary Fund (IMF) and the World Bank

Inflation Rate

-0.9% -0.8%

3.3%

4.5%

2.0%2.5% 2.5%

Budget Deficit

Jordan fiscal deficit is projected to maintain a stabilized performance in 2020 and 2021 reaching 3.2% as of GDP compared to 3.1% in 2019, owing to a limited revenue growth (versus the budget targets) and higher continual spending. Fiscal measures introduced in 2019 did not materialize given subdued economic activity, and difficult socio-economic conditions. However, the government is planning to narrow its fiscal deficit in 2020 through robust domestic revenue mobilization, driven by the new income tax law. Over medium-term, primary balance (including grants) is projected to decline by almost 1% of GDP as revenue enhancing measures, electricity and water cost recovery are achieved. Fiscal consolidation and anticipated higher concessional budgetary flows will improve debt dynamics over the medium-term.

Preliminary estimates indicate real GDP growth to increase slightly reaching 2.4% in 2020 compared to 2.2% in 2019 and is expected to reach 2.8% by 2021, according to the World Bank. Jordan macroeconomic policy has succeeded in buffering adverse shocks; however, the country did not manage to change the structure of its economy, improve its efficiency or productivity in the past decade. According to the World Bank projections, GDP growth is projected to recover gradually, supported by net exports on the demand side, and robust performance of the services sector, especially tourism, from the supply side.

Inflationary pressures eased after reaching a peak in 2018 as commodity prices stabilized. According to the World Bank projections, Jordan annual headline inflation average will reach 2.5% in 2020 and 2021 compared to 2% in 2019. This stabilized inflation performance is due to a steadiness in oil and food prices and receding consumer price pressures driven by fiscal measures. Moreover, the effect of the General Sales Tax increase faded away. This broadly mirrors the Fed’s rate rises, given the peg of the Jordanian Dinar to the US dollar. The tightening cycle coincided with a gradual yet moderate increase in inflation, as mentioned earlier.


The Jordanian economy has been particularly affected by the conflict in Syria, which was sparked in 2011. Following a period of robust growth averaging 6.2% during 2001-2010, Jordan GDP growth has decelerated to an average of 2.4% during 2011-2018. While reflecting Jordan’s long-standing macroeconomic and structural weaknesses, the economic slowdown was largely driven by a series of external shocks. These shocks include the disruption of critical export routes and markets from protracted regional conflicts, sharp decline in FDI, hosting a large numbers of Syrian refugees (1.3 million according to estimates of the Jordanian authorities out of which 660,330 are registered with the UNHCR) and rising oil prices and borrowing costs reflecting the rise of Fed’s rates.

Inflation Rate

GDP Growth

Prolonged weak economic growth is reflected in increased unemployment indicators and a declining labor force participation rate. The unemployment rate is expected to maintain its high levels on average during 2020 and 2021 reaching 18.7% and 18.5%, respectively compared to 18.9% in 2019. Unemployment patterns consistently show high rates among females, youth, and university graduates in Jordan labor market. Moreover, the weak economic performance is further reflected in a declining labor force participation rate, which reached 38.2% in 2018.

Unemployment Rate

12 13

Source: International Monetary Fund (IMF)and the World Bank


2015 2016 2017 2018 2019 2020 E 2021 E

2.4% 2.0% 2.1% 1.9% 2.2% 2.4% 2.8%

18.5%18.7%18.7% 18.9%18.3%15.3%

13%


Lebanon

Lebanon ranking on the World Bank’s Doing Business 2020 report has deteriorated one place, to be ranked 143rd out of 190 countries in 2019 compared to 142nd place in 2018. This deterioration is due to the underperformance in areas of starting a business and dealing with construction permits. Noting that Lebanon has made one reform to improve its business climate in the last five years and seven reforms since the first launch of the Doing Business study in 2003. Moreover, Fitch ratings agency downgraded the sovereign to CCC on debt-servicing concerns. At the same time, S&P Global affirmed Lebanon's credit rating at B-/B with a negative outlook, as it considered Lebanon's foreign exchange reserves enough to service government debt in the "near term".



2015 2016 2017 2018 2019 2020 E 2021 E

Source: International Monetary Fund (IMF)

Inflation Rate

-0.8%

4.5%4.3%

3.0%

2.5%2.8% 3.0%

Budget Deficit

Inflows to Lebanon increased from 2.8 BN USD in 2018 to 2.9 BN USD in 2019 and are expected to further stabilize around the same level or to decrease in 2020 reaching almost from 2 to 2.5 BN USD due to the political turbulence and the deep expected alerted coming recession. In fact, as a percentage of GDP, FDI has faced unstable domestic and regional environment mainly due to the civil war in neighboring Syria. Despite the government offering incentives to encourage investors to overlook potential risks, Fitch expects that this slow rate of growth will continue over the medium term. As for FDI barriers in Lebanon, the only remaining barrier exist in terms of some localization and job creation requirements, particularly if businesses wish to benefit from incentive programs, the dominant presence of State-Owned Enterprises (SOEs) in few sectors and limited foreign ownership restrictions.

The fiscal deficit has reached double digits. The overall balance recorded an estimated deficit of 10.5% of GDP in 2020 compared to 11.5% in 2019. However, the 2020 draft government budget aims to shrink the fiscal deficit further to 6% of GDP through additional revenue measures, including fighting tax evasion decisively, raising fuel taxes and VAT on luxury products. The implementation of such measures would increase the chances of a successful fiscal adjustment and provide an opportunity to strengthen the central bank’s balance sheet and bring down interest rates. It is worthy to mention that Lebanon economy is heavily based on consumption and since the main supply-side sectors of the economy such as real estate, trade, and public administration do not produce the consumption goods in demand, the goods needed are therefore imported which lead to the important current account deficit.

Lebanon Unemployment rate is expected to reach 7% in 2020 compared to 6.6% in 2019 and will further increase in 2021 reaching 7.4%. Taken together, slow growth combined with weak job creation mean that Lebanon now faces a significant unemployment challenge in addition to the Syrian refugee’s crisis consuming the vacant jobs. Also, due to the problems in the neighboring countries; it is almost impossible for labor to become mobile, concentrating the unemployed labor and significantly adding to the percentage. Another serious problem concerns the existence of a “skills gap” between what the employers demand and what the employees are able to provide.

Lebanon economic situation has become increasingly alarming. Economic growth has reached 1.4% on average since 2011 and is forecasted to decrease to an estimated 0.2% in 2020 and 0.9% in 2021. The nearly nine-month political vacuum between the May 2018 election and eventual government formation on 31 January 2019 weighed on business confidence. Uncertainty regarding the political transition and reform implementation weigh on the economic outlook and nonresident depositor and foreign investor confidence.

Lebanon inflation rate is expected to reach 2.8% in 2020 and further increase in 2021 reaching 3% compared to 2.5% in 2019. This projected increase is due to the fast increase of interest rates by the Central Bank of Lebanon (BdL) in order to attract foreign currency deposits. Moreover, the fast devaluation of the pound on the informal market had accelerated the inflation on basic consumption goods. In addition, Lebanon will face an increase in the consumer prices including electricity, water and fuels in 2020, adding that the increasing unemployment will paralyze the consumption accumulating the effect on the prices.According to Lebanon Minister of Finance, Ali Hassan Khalil, Lebanon economic

growth is expected to be zero if not negative in 2020, leading to pressure on the Central Bank’s foreign currency reserves. Yet, the government continues to borrow. While GDP stands at 55 BN USD, the national debt is around 150% of GDP, or 85 BN USD in 2019. Further economic deterioration, including the risk of a sharp currency devaluation, would exacerbate social tensions. According to the International Monetary Fund (IMF), the country is sliding into a deep recession as a result of the government’s failure so far to complete the 2020 draft budget, implement reforms, cut the deficit and increase state revenues. It is worthy to mention that political instability and electricity outages continue to be listed by firms as the two largest barriers to doing business.

Inflation Rate

GDP Growth

Unemployment Rate

14 15

Source: Lebanon Ministry of Finance& International Monetary Fund (IMF)


2016 2017 2018 2019 2020 E 2021 E

1.0% 1.2% 1.5% 0.2% 0.2% 0.9%

7.4%7.0%

6.3%6.6%

6.3%6.2%


Oman

Oman achieved considerable progress in the Doing Business report 2020 by jumping 10 ranks ahead from the 78th place in 2018 to 68th place in 2019. However, Moody’s and S&P credit rating agencies speculated a negative outlook regarding the country’s perfor-mance despite efforts to push the economy towards further diversification. This is mainly owing to the announced delay in imple-menting the VAT (which adversely affects fiscal consolidation) along with weak loan quality and tight credit conditions.

Macroeconomic IndicatorsForeign Direct Investment (FDI)

2015 2016 2017 2018 2019 2020 E 2021 E

Source: World Bank Economic Outlook

Inflation Rate

0.1%

1.1%1.6%

0.9% 0.8%

1.8%

3.8%

Budget Deficit

According to the World Bank forecasts, fiscal deficit in Oman is expected to increase reaching 9.4% of GDP in 2020 compared to 7.2% in 2019 and is expected to decrease further to reach 7% of GDP in 2021 due to the introduction of the VAT along with the revenues arising from strengthening the economy’s non-oil sectors. Moreover, the budget deficit increase in 2020 is due to the forecasted volatility in oil prices which constitute more than 53% of the country's revenues.

is expected to stabilize at 16% in 2020 and 2021, which is the same rate recorded in 2019. Oman is continuing its strategy to nationalize jobs in 2020, that was started in early 2019 when the authorities introduced visa bans on a number of 87 professions and resulted in an unprecedented reduction in the population of the expats in the country to be below 2 million. Oman unemployment rate is the highest in the MENA region and this typically resulted in dissatisfaction among Omani youth on different media platforms. Hence, the Government officials announced introducing 800 thousand job opportunities by 2040.

Is expected to increase in 2020 to reach 1.8% compared to 0.8% in 2019. Such increase is due to the introduction of excise taxes on carbonated drinks, tobacco and meat. In addition, it is projected to further increase to 3.8% in 2021 as per the World Bank Economic Outlook, owing to postponing the implementation of the Value added Tax (VAT) from 2020 to 2021.

Economic diversification strategies embedded in the new five-year plan along with significant natural gas production represent the main growth potentials in Oman in 2020. However, the country is still facing a considerable budget deficit that requires stronger fiscal buffers, in addition to the risk of volatile oil prices and a pressing unemployment problem.

Inflation Rate

GDP Growth

Unemployment Rate

16 17

Source: World Bank Economic Outlook2016


2015 2016 2017 2018 2019 2020 E 2021 E

4.7% 5.0% -0.9% 2.2% 0.3% 3.5% 4.0%

18.5%18.7%18.7% 18.9%18.3%15.3%13%


With regard to promoting FDI, a newly issued foreign capital investment law will be introduced in 2020. The new law will allow for 100% of foreign ownership without setting a legal minimum requirement. Furthermore, exten-sive efforts are directed towards establishing new free zones and offering incentives to investors such as the introduction of 5-year tax exemption plans, further public private partnerships and services at distinctive prices. The last available official figures for FDI inflows, released by the National Center for Statistics & Information, amounted to 30.3 BN USD in Q2-2019 compared to 26.7 BN USD in Q2-2018. The oil and gas sector represented the highest share of FDIs followed by the manufacturing and real estate sectors with UK and UAE being the main investors. Such figures are expected to increase in 2020 as a result of implementing the new law and the reforms completed in the Doing Business arena.

Is forecasted to increase reaching 3.5% in 2020 and 4% in 2021 compared to the low and revised down rate of 0.3% recorded in 2019, according to the World Bank projections. Such increase is mainly driven by the government’s efforts to diversify the economy through its new five-year plan (2021-2025) with the keystone of extending the favorable results of the “Tanfeedah Program” launched over the course of the previous plan.The Program focuses on promoting five main sectors which are: agriculture and fisheries, manufac-turing, logistics and transport, energy and mining, and tourism. Other growth drivers include the expansion of natural gas driven by the significant contribution of Khazzan gas field, with production amounting to one third of the total production in Oman. Such favorable production conditions are attracting discovery activities and further investment opportu-nities in the gas sector.

Kuwait has always been a country open to foreign investment and will further open to foreign capital; however, FDI is still underdeveloped in the country. According to UNCTAD's World Investment Report 2019, the lack of diversity in the economy and the fall in oil prices since 2014 caused the decrease of inflows. FDI Inflows reached 349 MM USD in 2019, staying relatively stable compared to 346 MM USD in 2018 and is expected to reach 352 MM USD in 2020. The bulk of investments are directed towards the oil & gas sector, followed by real estate/construction and financial services. Most of the foreign investments come from the United States and China. According to the FDI law, foreign investors are incentivized to invest in Kuwait including property incen-tives in the form of a land grant and a tax holiday for up to 10 years. However, to date, the FDI law hasn’t yet achieved the desired expected impact that was expected from its implementation. This is primarily due to the difficulty foreign investors have faced in obtaining a license from the Kuwait Foreign Investment Bureau (KFIB), the entity established to implement the FDI Law.

Kuwait ranking in the Ease of Doing Business improved from 97 in 2019 to 83 in 2020. The government is trying to sustain these efforts for the coming years, towards realizing the vision of becoming a financial and trading hub in the region. Kuwait is one of the world’s top 10 improvers amongst 190 economies in the World Bank Group’s Doing Business 2020 study, due to the comprehensive reform program in 2019. These improvements are aligned with His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah’s Vision 2035 and New Kuwait.


Foreign Direct Investment (FDI)2015 2016 2017 2018 2019 2020 E 2021 E

Source: International Monetary Fund (IMF)World Economic Outlook Database and the World Bank

Inflation Rate

3.3%3.5%

1.5%0.8%

3.0%

3.6% 3.9%

Budget Deficit

The fiscal position remains a challenge, with a combination of soft oil prices and high government spending projected to keep the budget in substantial deficit over the forecast horizon. The deficit is forecasted to widen to 8% of GDP in 2020 and 7.6% of GDP in 2021 compared to 3% of GDP in 2019, according to the National Bank of Kuwait (NBK). Flat oil prices, difficulties in cutting current spending and the lack of measures to boost non-oil revenues would leave average funding needs to 5 BN KWD (16.44 BN USD) annually over the next four years. A new debt law would slow the drawdown of the 20 BN KWD (65.79 BN USD) or so in the General Reserve Fund (GRF) used to finance the budget shortfall.

Preliminary estimates indicate real GDP growth to increase reaching 2.6% in 2020 compared to 2.4% in 2019 as OPEC+ oil output cuts expire in March 2020 and government infrastructure projects are completed. Moreover, it is expected to reach 2.9% by 2021, according to IMF Outlook. This estimated growth rate is attributed to investing in several projects in the oil and refining sector, including 16 BN USD worth of investment in Al Zour oil field, in addition to Clean Fuels Project with a value of 12 BN USD.

Unemployment rate is expected to slightly increase in 2020 reaching 2.3% compared to 2.1% in 2019. However, it is projected to decrease in 2021 reaching 1.3%, according to IMF. This decline is due to a prolonged strong economic growth reflected in an increase in labor force participation rate as well. It is worthy to mention that the unemployment rate has been relatively constant over the last 5 years, fluctuating around 2%. Moreover, the cut in oil production had a strong effect on the economy including a fall in the jobs availability in the labor market, therefore causing the increase in the unemployment rate over the past 5 years. However, starting from 2021, it is expected to decrease based on the government economic reforms.

Inflationary pressures will reach its peak in 2021. According to IMF projections, Kuwait annual headline inflation average will reach 3.6% in 2020 compared to 3% in 2019 and is expected to further increase in 2021 to reach 3.9% in 2021. This increase is due to the oil prices forecasted increase in addition to expected expenditure on new mega structures that shall take its toll on fiscal budget echoing in the inflation rate. Moreover, the possible implementation of VAT no earlier than 2021 would push an increase in inflation rates as expected by the IMFKuwait is a rich country that has developed a welfare state for its nationals, who

enjoy a very high per capita income. Kuwait is trying to diversify its economy away from oil as it contributes 90% of its GDP, especially with geopolitical tensions, OPEC oil cuts, and unsteady oil prices. Moreover, to boost economic growth outside the oil sector, Kuwait is investing heavily in its Northern Gulf Gateway (NGG) project which is predicted to attract up to 450 BN USD in foreign investment and add around 220 BN USD to the country’s GDP. The project NGG development will have a world-class airport, industries, a knowledge zone, leisure zone and educational zone. With Northern Gulf Gateway, Kuwait will be a catalyst in bringing together other countries in the region and across the world realizing the Kuwait National Vision 2035. The country’s recent upgrade from frontier to emerging market by Morgan Stanley Capital International (MSCI; measurement of stock market performance in an area) was an acknowledgment of Kuwait reforms, direction, and vision.

Inflation Rate

GDP Growth

Unemployment Rate

18 19

Source: International Monetary Fund (IMF)World Economic Outlook Database, October 2019 and the World Bank

2016


2015 2016 2017 2018 2019 2020 E 2021 E

2.2% 2.9% -3.5% 2.0% 2.4% 2.6% 2.9%

1.32%2.3%2.0% 2.1%1.9%2.1%2.2%


kuwait

Qatar

Qatar was able to achieve significant reforms in the area of doing business, which placed it among the best 20 performers for enhancing the business environment. It recorded the 77th rank globally in 2019 according to “Doing Business report 2020” instead of 83rd rank in 2018, along with registering the first rank in the global property registration index. In addition, S&P credit rating agency maintained its stable outlook for the Qatari economy with a rating of AA- backed by its strong fiscal foundations. Finally, signs are emanating regarding a possible resolution of the diplomatic turbulences between Qatar and its neighboring countries. However, there are not yet solid steps taken in this direction.

Macroeconomic Indicators Foreign Direct Investment (FDI)

2015 2016 2017 2018 2019 2020 E 2021 E

Source: World Bank Economic Outlook

Inflation Rate

1.9%

2.9%

0.4%0.2% 0.3%

3.5%

2.1%

Budget Deficit

Qatar budget for 2019/2020 will be recording a surplus for the third consecutive year of 500 MM QAR (13.7 MM USD). However, such surplus is less than last year’s record of 4.4 BN QAR (1.21 BN USD). Revenues are projected to be maintained at 211 BN QAR (57.95 BN USD) which is the same amount in 2019, whereas expenditures will encounter an increase from 206.7 BN QAR (56.8 BN USD) in 2019 to 210.5 BN QAR (57.7 BN USD) in 2020. This is mainly due to the country’s commitment to finance its major projects.

Based on Qatar economic outlook, unemployment rates are expected to stand at 0.1% in 2020 and 2021, which is also the same rate recorded in 2019 and 2018. The latest estimates published by the Planning and Statistics authority in the labor force survey pointed to a stabilized unemployment rate of 0.1% in Q2-2019 with the same rate recorded in Q2-2018. The country still maintains its position in terms of having the lowest unemployment rate in the MENA region that is also less than the world average.

It is expected to significantly increase to 3.5% in 2020 compared to 0.3% in 2019. The main driver of such increase is the introduction of 5% VAT. However, this inflationary pressure will be mitigated in 2021 where it will decrease to reach 2.1% because the effect of implementing the new tax will be absorbed by then.

Government spending on World Cup preparations, sound fiscal foundations, consolidation plans and banking system along with expanded gas production comprise the main highlights of the Qatari Economy in 2020. Efforts are directed towards enhancing diversification and promoting the growth of the private sector with oil prices volatility and trade tensions representing the main economic challenges that could weigh on the state's external position.

Inflation Rate

GDP Growth

Unemployment Rate

20 21

Source: World Bank Economic Outlook 2019and Planning & Statistics authority

2016


2015 2016 2017 2018 2019 2020 E 2021 E

3.9% 2.1% 1.6% 2.3% 2.7% 3.0% 3.2%

0.1% 0.1% 0.1% 0.1% 0.1%0.1%0.2%


Qatar FDI net inflows reached -0.5 BN USD in 2019 compared to -2.186 BN USD in 2018 according to the World Bank. Such figures are expected to further increase in 2020 and 2021 reaching 1 BN USD and 1.8 BN USD respectively as a result of the strong credit rating for the Qatari economy, the significant improvement in the “Ease of Doing Business” and eliminating bureaucracy regarding land registration process. This is in addition to promoting the private sector role in the construction and finance sectors through drafting a new law on public private partnerships (PPP) and the establishment of an investment promotion agency.

It is projected to increase to 3% and 3.2% in 2020 and 2021 respectively, compared to 2% in 2019 according to the World Bank Economic Outlook. The main growth drivers include the expansion in the production of natural gas which represents 85% of the country’s export proceeds. Such figure could further increase owing to the inauguration of Barzan Field and new explorations in the North Field during 2020. Other growth drivers include the increased public expenditures to support the planned infrastructure projects and preparations for "World Cup 2022". Finally, the growth of the non-oil economy is expected to continue but at a slower rate of 4.3% in 2020 compared to 4.6% in 2019, as per the projections of the IMF.

Forecasts by the Central Bank of Bahrain pointed to an increase in FDI inflows reaching 11 BN BHD (29.2 BN USD) in 2020. Moreover, the world bank projections pointed to a stability in the net foreign direct investment reaching 1.9% as % of GDP in 2020 and 2021. Noting that according to the latest report released by the information and eGovernment authority in Bahrain, they indicated that FDI inflows reached 10.9 BN BHD (28.9 BN USD) in Q2-2019, scoring a 1% increase compared to Q2-2018, with the finance and insurance industry accounting for the highest share of the inflows.Bahrain economic growth rate is expected to increase from 1.8% in

2019 to 2.1% in 2020 according to the World Bank economic outlook. The drivers of such growth include the boost in the manufacturing and Tourism sector where the Bahraini capital “Manama” will be the capital of Arab Tourism in 2020. This is in addition to spending on major infrastructure projects supported by the GCC development fund along with financing new broadband, water and electricity networks and solar plants. Overall growth in the non-oil economy is projected to reach 2.5% in 2020 compared to 2.2% in 2019, according to the IMF. The main risk to the Bahraini economy is the projected volatility in oil prices along with keeping track of all the austerity elements of “The Fiscal Balance Program” to achieve its targeted objectives in 2022 which could be painful for the Bahrainis.

The Kingdom of Bahrain undertook prominent reforms to improve its business climate that resulted in enhancing its rank in the "Doing Business report 2020" 19 places ahead from the 62nd rank in 2018 to the 43rd rank in 2019 along with achieving the highest rank globally in the fiscal compliance time. In addition, S&P credit rating agency changed its outlook of the Bahraini economy from stable to positive in light of the Kingdom's prominent efforts to achieve the targets of the Fiscal Balance Program and tighten its budget deficit.


Foreign Direct Investment (FDI)2015 2016 2017 2018 2019 2020 E 2021 E

Source: International Monetary Fund (IMF)

Inflation Rate

1.8%2.8%

1.4%2.1%

3.3%3.2%

2.3%

Budget Deficit

The Ministry of finance published draft budgets for the year 2019 along with 2020 where revenues were projected at 2.9 BN BHD (7.8 BN USD) in 2020 compared to 2.8 BN BHD (7.5 BN USD) in 2019. Expenditures also encountered an increase to 3.55 BN BHD (9.4 BN USD) budgeted for 2020 compared to 3.51 BN BHD (9.3 BN USD) in 2019. Such figures imply a decline in the deficit from 1.8 BN USD in 2019 to 1.6 BN USD in 2020. This was typically the result of implementing the elements of “The Fiscal Balance Program” which led to subsidy cuts and voluntary retirement in the public sector in addition to introducing the VAT. The Budget deficit is expected to amount to 7.7% of GDP in 2020 compared to 8.4% in 2019, according to the World Bank projections. However, the government’s projections pointed to lower deficits of 4.7% and 3.9% for 2019 and 2020 respectively.

The World Bank and IMF projections pointed to an expected stability in the unemployment rate in the Kingdom to stand at 3.9% in 2020 and 2021, which was the same rate recorded in 2019. Two opposing trends could be observed with regard to the labor market in Bahrain. The first is the decline in public sector employment as a result of implementing the “Voluntary Retirement Program” introduced as part of the Fiscal Balance framework and which resulted in the compression of employment in this sector by 14% in Q3-2019 compared to Q3-2018. While the second trend is the increase in employment within the private sector by 2% in Q3-2019 compared to Q2-2019. Such trends go along with the “National Employment Program” launched in 2019 whose focus is to foster the employment of Bahraini citizens.

It is expected to slightly decline from 3.3% in 2019 to 3.2% in 2020. Moreover, the world bank forecasts pointed to further reductions in the inflation rate in 2021 to reach 2.3%. The third phase of applying the Value Added Tax (VAT) effectively started in January 2020 explaining why the inflation decline in 2020 is minimal. However, the inflationary effect of applying the VAT will be absorbed in 2021.

Bahrain received the first tranche of the GCC aid package in 2019 which amounted to 2.3 BN USD and is expected to receive 1.76 BN USD in 2020 and 1.85 BN USD in 2021. This aid package by the GCC was linked to the Fiscal Balance Program which the Kingdom adopted in late 2018 and which is expected to help eliminate the budget deficit in 2022, according to the reports of the Ministry of Finance.

Inflation Rate

GDP Growth

Unemployment Rate

22 23

Source: World Bank Data Economic Outlook – October 2019


2016 2017 2018 2019 2020 E 2021 E

3.5%2015

2.9% 3.8% 1.8% 1.8% 2.1% 2.3%

3.9%3.9%3.9% 3.9%3.6%3.7%3.4%


Bahrain

2

Summary of the Economic Indicators in 2020

24

* According to the projections of “Wallet Investor”** Doing Business Ranking is out of 190

Egypt

UAE

Saudi Arabia

Jordan

Lebanon

Oman

Kuwait

Qatar

Bahrain

GDP Growth Inflation RateExchange Rate

to USD *Doing Business

Ranking**

5.9%

2.6%

2.3%

2.4%

2.2%

3.5%

3.1%

3.0%

2.1%

11.4%

1.3%

2.0%

2.5%

2.5%

1.8%

3%

3.5%

3.2%

14.95 EGP

3.67 AED

3.75 SAR

0.71 JOD

1515.2 LBP

0.38 OMR

0.30 KWD

3.62 QAR

0.38 BHD

114

16

62

75

143

68

83

77

43

UnemploymentRate

9.5%

3.2%

5.9%

18.7%

6.7%

165

2.3%

0.1%

3.9%

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