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8/2/2019 It's Not About the Money HSBC Middle East Report
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MacroMiddle East Economics
Q2 2012ECONOMICSMiddle East
Its not about the money
Disclosures and Disclaimer This report must be read with the disclosures and analyst
certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
By Simon Williams and Elizabeth Martins
The worlds oil importers are transferring resources to the oil producers of the
Middle East at a record pace
but while regional savings are soaring, growth is modest and appetite for reform
looks weak against a troubled political backdrop
For the regions commodity poor, high energy prices are imposing additional strain
on an already difficult economic outlook
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Summary 2
Its not about the money 4
Middle East & North Africa ata glance 15
Key forecasts 16
GDP 17
Consumption & saving 18
Investment 19
Credit 20
Population & GDP/Capita 21
Inflation 22
Public finances 23
Oil 24
External balance 25
External debt 26
Reserves 27
Exchange rates & interest rates 28
Country outlooks 29Algeria 30
Bahrain 31
Egypt 32
Iraq 33
Jordan 34
Kuwait 35
Lebanon 36
Morocco 37
Oman 38
Pakistan 39
Qatar 40
Saudi Arabia 41
Tunisia 42
United Arab Emirates 43
Disclosure appendix 46
Disclaimer 47
Contents
We acknowledge the assistance of Michelle Campbell (HSBC Bank Middle East Ltd) in the production of this report.
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Oil prices have risen 20% since our last Middle East
Economics Quarterly a rise which will translate,
for the regions oil producers, into an additional
USD400m a day in revenues. We estimate total
export receipts will come in at USD750bn in 2012,
taking dollar GDP for the region as a whole to
USD2.5trn, and adding over USD400bn to the oil
producers already substantial foreign assets.
For a region in urgent need of job creation,
however, money is not enough. Even increasingvolumes of exports though lucrative has a
very limited feed-through to the wider economy.
Government spending increases will be only at
the margins, given already expansionary budgets,
and, by definition, the accumulation of surpluses
and reserves precludes consumption.
The challenge facing the MENA region, then, is
to turn this nominal growth into real growth
something which has historically proven difficult.
We estimate that, by 2013, public spending will
have increased fourfold in less than a decade. Yet
annual real GDP growth over that period has
rarely topped 5%. Indeed, despite all of its
advantages, the region has tended to lag not lead
its emerging market peers.
With spending levels rising at this rate, the risk of
a sharp and painful adjustment when oil prices
fall is increasing. Labour market inefficiencies
and costly subsidy regimes are both in need of
reform to increase fiscal flexibility. Yet higher oil
prices, particularly in conjunction with the
political risks which came to the fore in 2011, arelikely to reduce the incentive for governments to
make these changes.
The non-oil producers in the region will feel the
impact of higher energy prices as yet another
headwind in an already acutely challenging
growth environment. Trade deficits are widening
at a time when investment and tourism inflows
are not forthcoming, and increased subsidy
spending will add to the strains on public
finances. Higher oil prices put Gulf states in a
position to provide financial aid, but there has
been little evidence of this materialising thus far.
Summary
Higher oil prices will bring record revenues to the MENA region in
2012, adding an estimated USD400bn to the assets of its producers
and lifting GDP to USD2.7trn. However, turning a fresh surge in
nominal growth into real growth and hence wealth into prosperity
will be much harder. The feed-through channels to the real economy
are, at best, constrained, and a still troubled political backdrop will
also weigh heavily. Current levels of fiscal comfort may also deter
the kind of structural reforms that will promote more rapid growth
over the long term. Meanwhile, for the non-oil states, the rise in
prices adds to an already acutely challenging economic picture.
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Key forecasts and changesKey forecasts
MENA GCC Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar KSA Tunisia UAE
Real GDP growth (%, y-o-y)2010 5.4 5.6 4.8 4.5 5.1 7.3 3.4 3.3 7.1 3.7 4.7 4.4 14.3 4.1 3.8 5.32011 5.1 6.6 4.4 2.2 1.8 5.6 2.7 4.2 1.7 4.8 4.2 2.1 15.2 6.6 -1.8 4.12012f 3.6 3.9 4.6 2.5 1.8 4.1 2.3 3.4 2.3 2.5 4.6 2.9 6.4 4.0 3.5 2.62013f 4.0 4.0 3.5 3.5 3.7 5.8 3.4 3.9 3.9 3.8 4.2 2.7 5.8 3.9 4.7 3.3GDP (USDbn)2010 1983 1091 162 22 209 147 23 145 39 92 60 176 129 448 44 2872011 2424 1393 204 26 237 181 25 189 41 94 78 207 181 587 41 3322012f 2680 1545 221 27 251 209 27 224 44 109 89 225 198 652 48 3562013f 2739 1543 227 28 261 220 30 227 47 117 91 241 201 638 53 358
Current Account balance (% GDP)2010 7.5 13.5 14.3 6.3 -2.1 -0.2 -5.4 23.2 -21.0 -5.4 11.0 -2.0 16.4 15.7 -0.4 5.02011 14.0 23.3 9.6 6.6 -1.2 10.5 -20.4 30.3 -25.1 -5.1 13.4 0.3 28.8 27.3 -4.2 12.82012f 14.8 24.0 13.0 8.9 -2.0 12.2 -19.8 32.6 -20.9 -4.4 16.9 -1.2 28.7 26.9 -5.1 13.82013f 9.7 17.0 8.9 5.3 -2.6 5.0 -16.7 27.6 -15.3 -4.0 9.0 -0.9 22.0 17.5 -2.9 9.4CPI (%, end period)2010 5.7 3.8 2.7 1.0 10.7 6.0 6.1 6.0 4.5 2.2 4.2 15.5 0.4 5.4 4.0 1.82011 5.3 3.5 4.0 1.0 11.8 5.0 4.2 3.1 4.0 3.0 3.3 12.5 2.3 5.3 4.2 1.52012f 5.2 3.9 3.5 2.5 9.5 5.0 4.0 4.9 3.5 3.0 4.2 13.1 3.8 4.8 3.3 1.72013f 5.5 4.3 4.3 3.0 10.0 5.0 3.0 3.8 3.5 3.0 4.9 12.6 4.7 5.5 4.5 2.2Policy Rate (%)2010 4.00 0.50 8.50 6.00 4.25 2.50 10.00 3.25 2.00 12.50 1.50 0.25 4.50 1.002011 4.00 0.50 8.50 6.00 4.50 2.50 10.00 3.25 2.00 13.50 0.75 0.25 3.50 1.002012f 4.00 0.50 9.50 6.00 4.50 2.50 10.00 3.00 2.00 12.00 0.75 0.25 3.50 1.002013f 4.00 0.50 9.50 5.50 4.50 2.50 10.00 3.00 2.00 12.00 0.75 0.25 3.50 1.00Exchange Rates (vs. USD, year end)
2010 74.9 0.376 5.70 1170 0.709 0.281 1508 8.33 0.385 84.6 3.64 3.75 1.44 3.672011 76.1 0.376 5.97 1165 0.709 0.275 1508 8.59 0.385 89.7 3.64 3.75 1.50 3.672012f 75.8 0.376 6.25 1150 0.709 0.275 1508 7.83 0.385 93.0 3.64 3.75 1.35 3.672013f 75.7 0.376 6.60 1135 0.709 0.275 1508 7.79 0.385 95.0 3.64 3.75 1.34 3.67
Fiscal year, ending 30 JuneSource: MENA Central Banks, Ministries of Finance, HSBC estimates and forecasts
Key changes to regional economic outlook and country growth forecasts
______________Q1 2012 forecasts ______________ _______________Latest forecasts _______________2012 2013 2012 2013
MENA aggregatesReal GDP growth (%) 3.5 4.0 3.6 4.0Current account balance (% GDP) 10.0 7.7 14.8 9.7Fiscal balance (% GDP) 0.4 -0.5 5.5 2.4CPI (%, end period) 5.5 5.9 5.2 5.5Key changes to growthAlgeria 4.2 3.7 4.6 3.5Bahrain 2.4 3.6 2.5 3.5Egypt 2.7 3.9 1.8 3.7Morocco 2.5 3.2 2.5 3.8Oman 3.9 4.2 4.6 4.2
Pakistan 2.9 3.1 2.9 2.7Qatar 8 6.8 6.4 5.8Saudi Arabia 2.9 3.4 4.0 3.9UAE 3.1 4.2 2.6 3.3
Source: HSBC estimates and forecasts. Fiscal year, ending 30 June
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Your pain. Our gain.
In the West, the 20% increase in energy costs over
the first months of the year poses a direct and
material threat to the still fragile recovery ineconomic activity. In Asia, the risk that rising oil
prices will lead to higher inflation is a cause of
growing concern.
In much of the Middle East, the situation could
hardly be more different. By our estimates, at
USD120/b (rather than the USD100/b that
prevailed at the end of last year), the value of the
regions oil output has risen by an additional
USD400m a day. In the zero-sum game of
commodity markets, the worlds oil consumers will
have delivered almost USD200bn to Middle East
oil exporters in the first quarter of the year alone
USD30bn more than they might have but for the
recent price gain. Of that total, we estimate that
USD145bn accrued to the six states of the GCC,
the equivalent of more than USD5,500 for every
Gulf national in the space of just three months.
Even compared to other oil producers, those in the
Middle East stand out as beneficiaries of the
recent price spike. Only MENA has additional
capacity to bring on line, allowing it to compound
the pick-up in price with an increase in output
volumes. Average production costs are also just a
Its not about the money
The world's oil importers are transferring resources to the oil
producers of the Middle East at a record pace
but while regional savings are soaring, growth is modest and
appetite for reform looks weak against a troubled political backdrop
For the regions commodity-poor, high energy prices are imposing
additional strain on an already difficult economic outlook
There's no doubting who the winners of the oil boom are... ...or where wealth is focused.
Nominal GDP (USDbn)
0
500
1000
1500
2000
2005 2012f
Non oil producers* Oil producers
GPD per capita (USD)
0
5000
10000
15000
20000
2005 2012f
Non oil producers* Oil producers
Source: MENA Central Banks, HSBC estimates. * Excludes Pakistan Source: MENA Central Banks ,HSBC estimates. * Excludes Pakistan
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fraction of those elsewhere, running at just over
USD10/b in MENA compared to USD25/b in
Russia or USD35/b in the Americas. At
USD125/b in other words, 90% of the income
accrues as profit. With production largely state
owned, that profit stays onshore rather than being
transferred to production partners overseas.
A two and half trillion dollar economy
While the futures curve continues to suggest oil
prices will weaken, they are set to do so later -
and from a higher base - than had previously
seemed likely. Factoring this into our forecasts
suggests that oil exports will reach some
USD750bn this year, an all time high that will
easily surpass the heady days of 2008 when oil
prices briefly looked set to breach USD150/b.
The increase in the value of oil output should
drive MENA GDP to more than USD2.7trn this
year, roughly the same economic scale as France.
We estimate that in the GCC, home to just 10% ofthe regions population but 77% of the oil exports,
dollar GDP will exceed USD1.5trn. If reached,
the figure will mean that, in dollar terms, GCC
GDP will have trebled in less than a decade on the
back of high oil earnings and risen by two-thirds
since 2009.
In absolute terms, Saudi Arabia stands out, with
dollar GDP likely to reach USD650bn in 2012, an
increase of more than USD250bn since 2009.
Qatars remains the most striking dynamic,
however, with gains in oil earnings coupled with a
sharp rise in gas production suggesting that
nominal GDP should have doubled between 2009
and 2012. The gains will keep Qatari GDP per
capita at around USD100,000 or over USD350,000
per head when expatriates are excluded.
Spend more; earn even more; save more still
Because the oil industry across the region is
owned by the state and is the dominant source of
budget funding, the run-up in oil prices continues
to strengthen public finances. We expect the GCC
states to run an aggregate budget surplus of
around 12% of GDP in 2012, allowing the
regions governments to continue to reduce what
are already modest levels of public debt. In both
Saudi Arabia and Oman, for example, debtstocks of under 10% of GDP will continue to
trend downward as surpluses accrue.
The windfall will further enhance the regional oil
producers robust external account position. We
expect every GCC state to record a current
account surplus this year, with the overall
aggregate balance equating to just under 25% of
GDP. This should leave MENAs oil producers
with over USD400bn to add to their foreign asset
stock in 2012 alone.
Although likely not the largest holder of foreign
assets, Saudi Arabia is the most transparent.
SAMA accounts show that since the onset of the
Arab Spring, the kingdom has added well over
USD100bn to its reserves that reached over
USD560bn in February 2012. We expect the
kingdoms foreign reserve stock to breach
USD600bn this year.
Oil prices have driven a 3-fold rise in GCC GDP in a decade
0
500
1000
1500
2002
2004
2006
2008
2010
2012
0
25
50
75
100
125
GCC GDP (USD, bn) Brent (avg USD/b, RHS)
Source: GCC central banks, Bloomberg, HSBC estimates
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While this falls far short of the USD3trn managed
by the central bank of China, the gap narrows
when the USD1.5trn conservatively estimated tobe managed by other MENA banks and sovereign
wealth funds are added in. The assets also far
exceed those held by China as a percentage of
GDP and on a per capita basis, underscoring just
how robust their asset base is on a relative basis.
Indeed, by year-end we expect Saudi Arabia to
hold reserves equivalent to three years of import
spending. Those reserves would be sufficient to
fund public spending for a full two years.
More than enough money justisnt enough
While accumulating wealth in an environment of
rising energy prices is straight forward, transforming
the surge in nominal income into real growth is far
more troublesome.
For one thing, the oil industry itself doesnt
contribute much to growth. Increases in oil output lift
industrial production but the capital intensive nature
of oil production (just 0.24% of Saudi nationals work
for Saudi Aramco) and its reliance on imports means
that the spill-over from gains in oil production into
the rest of the domestic economy is very limited.
High oil prices are also not, by themselves, sufficient.
By definition, the large and growing fiscal and
current account surpluses we expect the major oil
producers to accrue this year and next represent
increases in savings, not gains in consumption,
investment or domestic demand.
To make their impact felt directly, the oil earnings
have to enter the domestic economy, mostobviously by being spent by the state. The data
show a strong tie between gains in oil earnings and
the spending plans of the major oil producers
which have been firmly expansionary over the past
decade. We strongly expect public spending to
show further overall gains in 2012 and 2013 and
be a prime driver of economic growth in the GCC
states. We also expect the oil-funded build up of
foreign assets to enhance their capacity to fund
spending plans over the longer term and help themguard against external shocks.
However, the feed through from oil earnings to
spending is not direct or immediate. Even in 2011,
when there was a strong political imperative to
boost spending quickly to offset political
pressures, it was current spending that
governments were able to lift quickly with gains
in capital spending taking much longer to deliver.
As such, the channelling of oil revenues through
Estimated foreign savings of global SWFs and central banks
Fund Name Assets(USDbn)
Assets(% GDP)
People's Bank of China 3,181 46Bank of Japan 1,295 22Abu Dhabi Investment Authority 627 189Norwegian Government Pension Fund 611 127SAFE Investment Company 568 8SAMA Foreign Holdings 556 95Central Bank of Russia 498 26China Investment Corporation 440 6Central Bank of Taiwan 357 71Central Bank of Brazil 357 14Swiss National Bank 340 51Bank of Korea 311 31Kuwait Investment Authority 296 157Central Bank of India 296 16HKMA 293 119Deutsche Bundesbank 257 7Government of Singapore InvestmentCorporation (GIC)
248 93
Bank of Algeria 186 91Bank of Thailand 176 52Bank of Italy 173 8
Source: Sovereign Wealth Fund Institute (Updated March 12),central bank sources
Saudis overseas holdings have soared
SAMA foreign assets (USDbn)
250
350
450
550
May-10
Aug-10
Nov-10
Feb-11
May-11
Aug-11
Nov-11
Feb-12
Foreign Currencies & Gold
Deposits in banks abroad
Investment in foreign securities
Source: SAMA
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the government effectively places a limit on the
capacity of the domestic economies to absorb
rising energy earnings. Put another way, the level
of public spending the GCC region will deliver in
the near term with oil at USD120/b is unlikely to
be significantly greater than the sum delivered
with oil at USD100/b.
Blocked channels in the Gulf
Aside from being spent, there are other means by
which high oil earnings might make their impactfelt on domestic demand. High oil prices may
encourage government-related companies to press
ahead with expansion plans, for example, with the
increased wealth of the sovereigns that stand
behind them making it easier and cheaper for the
state firms to borrow from overseas. The
placement of government surpluses on deposit
with local banks could also help keep interest
rates low and create a pool of liquidity on which
the private as well as public sectors can draw. Theclose correlation between high oil prices and the
performance of local-dominated regional stock
markets also suggests that there is a powerful
causative link between private sector confidence
and oil price movements.
However, the ability of oil revenues to feed
through these channels again appears constrained.
For one thing, governments in much of the region
remain reluctant to place their surpluses on
deposit within the domestic banking system.
Although there has been some change at the
margins most markedly in Qatar and Oman
the increases in liquidity pale when set against the
rise in oil receipts.
In SaudiArabia and the UAE, there is even less
evidence of feed through, with governments
continuing to place their surpluses overseas under
the management of the powerful sovereign wealth
funds. Algeria, the oil producer with the highestlevels of foreign reserve import cover, also has the
slowest rate of private sector credit creation as a
consequence of the state preference for placing
funds offshore.
Moreover, while the GCC states are feeling the
benefit of heightened political risk in increased oil
receipts, the same dynamic is also weighing on
private sector sentiment. Onshore, confidence is
more robust, but among overseas investors the
level of uncertainty is much higher with concerns
over possible conflict between Iran and the West
still elevated. Against a backdrop of broad
European deleveraging, this has weighed on
appetite for regional risk, even in the GCC. It also
helps explain why, though the local-dominated
regional equity markets joined the global rally, the
more heavily foreign-owned credit market has
lagged its global peers.
Oil revenues made their impact felt on Qatari banks ...but not in the banking system of the UAE
-20
0
2040
60
80
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
0
50
100
150
Qatar pub. sect. deposits (% chng, y -o-y )Oil price (USD/b, RHS)
-20
-10
0
10
20
30
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
0
50
100
150
UAE govt. deposits (% chng, y -o-y )
Oil price (USD/b, R HS)
Source: QCB, Bloomberg Source: CBUAE , Bloomberg
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Money cant buy me love
Indeed, while higher oil prices have led us to
revise our forecasts for nominal growth and
savings, our projections for real growth are
largely unchanged. Adjustments to our forecasts
for domestic, non-oil private sector growth have
been more limited still and we continue to expect
even the major oil producers to lag the rate of
expansion recorded by more dynamic emerging
market oil importer nations.
The trend is not new and the data continues to
highlight the shortcomings of the regions oil-
based, public sector-led economic model. We
estimate that GCC central government spending
will run at close to USD500bn by 2013 a figure
that will mean public spending will have
increased four-fold in less than a decade, and by
more than 40% since 2010. The sum is one of the
biggest and certainly one of the most sustained
fiscal stimuli on record.
The real growth delivered by this massive increase
in fiscal outlays, however, is muted, running at
around 5%, with domestic demand lagging even
this modest pace of increase. In Saudi Arabia, the
economy that has delivered the largest increase inspending in absolute terms over the past decade,
real growth has averaged less than 4% a year,
running above 5% for two consecutive years on
only one occasion since 2004.
The performance helps explain why, despite the
oil-driven increase in the scale of the economy,
unemployment has stayed high, with the last
International Labour Organisation report putting
youth unemployment at 30% close to the rate of
youth joblessness in the stalled economies of
peripheral Europe.
High oil prices hold backchange
The structural obstacles to more rapid, broad-
based economic growth are widely recognised.
With oil prices high, however, the likelihood of
High oil prices arent benefiting all producers equally
50
55
60
65
70
75
Feb-10
May-10
Aug-10
Nov-10
Feb-11
May-11
Aug-11
Nov-11
Feb-12
50
70
90
110
130
UAE PMI Saudi PMI Oil (USD/b, RHS)
Source: Markit Economics, HSBC, Bloomberg
High public spending doesnt always bring rapid growth (EM growth v growth in Saudi Arabia 2004-2012)
0
50
100
150
200
250
2004 2005 2006 2007 2008 2009 2010 2011 2012f
0
1
2
3
4
5
6
7
8
9
Publi c spending (USDbn, LHS) Real GDP growth (%) EM growth (avg, % chng)
Source: SAMA, HSBC estimates and forecasts
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This need not prompt Saudi Arabia and other oil
producers to mark down their spending plans
given the strength of their balance sheets and the
political imperative to maintain growth. However,
it would start to weigh on marginal spending
choices, creating downward pressures on
spending growth that would increase with each
passing year. Indeed, long-term forecasts
generated by Saudi-basedJadwa suggest that the
kingdom will run structural fiscal deficits from
2015 onward, and that to meet likely spending
objectives it would need an oil price of more than
USD300/b to balance its budget by 2030.
While this suggests that the growth impetus will
moderate progressively in the years ahead, the
slowdown will be more acute should oil prices
drop in the near term. All of the regions oil
producers have accumulated savings and reserves
of a scale that would allow them to weather even
the sharpest and most unexpected drops in oil
prices without finding their currencies or budget
positions under strain.
Nevertheless, we strongly suspect that a drop in
oil prices to even USD80/b would prompt the
regions oil producers to rethink elements of their
spending programme rather than seek to finance
an expansionary programme through debt or adraw-down in capital. Given that a twelve month
run of oil prices at USD60/b would leave Saudi
Arabia with a budget shortfall of more than 15%
of GDP, it seems highly likely that such a sharp
revenue drop would push the kingdom and other
oil states toward austerity.
While the spending of all of the oil producers
would likely react to a drop in revenues, some
enjoy greater room for manoeuvre than others.
Those GCC states with small populations and
substantial oil resources would inevitably fare best.
This group would be led by Qatar but we would
also expect to see Kuwait and AbuDhabi weather
a downgrade of their oil sectors comparatively
well. For Saudi Arabia, Oman, Algeria and
Bahrain, however, a structural downshift in oil
prices would prove more difficult to tolerate.
Spending has adjusted to rising revenues... with the impact of any price decline increasingly marked
0
20
40
60
80
100
2004
2005
2006
2007
2008
2009
2010
2011
2012
Saudi Arabia Breakev en oil price (USD per barrel)
-70
-50
-30
-10
10
$120 $100 $80 $60 $40 $20
0
100
200
300
Budget Balance (% GDP)
Budget Revenue (USDbn, RHS)
Source: HSBC estimates Source: HSBC estimates for 2012 (NB model adjusts both GDP and fiscal revenues
for oil price trend)
Saudi Arabia all but gives away its petrol
0.0
0.5
1.0
1.5
2.0
2.5
Germany
UK
Switzerland
S.Korea
US
UAE
Saudi
Gasoline prices (USD per litre)
Source: IEA
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Saudi and Qatar lead the wayOver the near term, however, Saudi Arabia,
along with Qatar remain the stand-out stories (see
Whos at Risk in 2012, January 16, 2012). In both
cases, gains in government spending that were in
train well before the recent pick-up in oil earnings
are driving domestic demand, supported by a
pick-up in the pace of credit creation.
Of the rest, Omans near-term outlook is
probably the most compelling, with data showing
that the recent pick-up in government spending is
both significant and comfortably funded by
revenues, despite the sultanates modest levels of
oil output. Lending has also gained speed.
Kuwaits more substantial oil resources have
supported strong gains in current spending which
appear to be feeding through into domestic
demand. We remain unconvinced by the quality
of policymaking in Kuwait, however, or by thegovernment's capacity to deliver on pledges to
increase the pace of capital spending. Similar
impediments weigh on Algeria ,which has one of
the largest stocks of foreign assets in the world,
but faces stagnant domestic demand.
Even in the UAE, which has one of the highest
levels of oil output per national, all of the
available indicators suggest that the pace of
domestic demand growth remains soft, including
in Abu Dhabi. The outlook is weaker still for
Bahrain where pledges to increase public
spending appear to be proving difficult to deliver
and still-pronounced political tensions are
weighing on private sector investment and activity.
No relief for the commoditypoor
For the regions non-oil producers, , the dynamic
is far more challenging with rising energy costs
adding to chronic external account imbalances. In
Morocco, for example, even the modest run-up in
oil prices in 2011 contributed to a widening of the
current account shortfall and a draw-down in
reserves. Although data are not yet available, it is
highly likely that the run-up in energy prices over
the first quarter of the year will have put their
external accounts under greater pressure still, with
little relief likely in the near term.
As the regions non-oil producers also regulate thecost of energy goods, higher oil prices are also
undermining their fiscal position too. In other
circumstances policymakers might have felt able to
pass some of the burden of higher imported fuel
costs on to consumers. However, clear memories of
the economic distress that triggered unrest across
much of MENA in 2011 gives the non-oil
producers very little room for manoeuvre. Indeed
Jordan, one of the few countries to have
The winners and losers of oil price gains are easy to pick ...which ever way you cut it
-25
0
25
50
75
Bahrain
Kuwait
Saudi
Iraq
Oman
Algeria
UAE
Qatar
Tunisia
Egypt
Pakista
n
Morocc
o
Lebanon
Jordan
Oil ex port earnings/ import spending (% GDP)
Earnings
Spending
-40
-20
0
20
40
Kuwait
Qatar
UAE
Bahrain
Iraq
Oman
Saudi
Algeria
Pakista
n
Egypt
Jordan
Morocc
o
Tunisia
Oil ex port earnings/ import spending per capita (USD '000)
Earnings
Spending
Source: Regional central banks, HSBC estimates Source: Regional central banks, HSBC estimates
https://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=1HRpM5uplF&n=317973.PDFhttps://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=1HRpM5uplF&n=317973.PDFhttps://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=1HRpM5uplF&n=317973.PDF8/2/2019 It's Not About the Money HSBC Middle East Report
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stress until resolved. In addition, we are anxious
at the pronounced populist pressures the new
leaders are set to face, particularly given both
their inexperience and the likely volatility of
newly elected houses of parliament.
Our real concerns, however, are rooted in the
economy, which contracted for the first time in ageneration in calendar 2011, held back by very
weak capital and consumption spending,
collapsing FDI inflows and a stalled tourism sector.
The choke points for this weak economic
performance continue to be Egypts fiscal and
external account deficits.
Although the currency has remained stable, Egypt
has used more than 60% of its pre-revolution
reserves to fund the external account shortfall,
with assets now standing at just 3 months of
import cover. We expect the current account to
remain in deficit in 2012 with reserves continuing
to take the strain. This will likely ensure that
market concerns of a sharp drop in the value of
the currency continue to build, alongside anxiety
that the authorities may introduce additional
currency controls to stem pressure on the pound.
The pressure on public finances also remains
acute. We estimate that Egypt could run budget
shortfalls of as much as 11% of GDP over FY-
2012 and FY-2013, 3.5ppt above the average of
the previous five years. Egypts commercial banks
were able to carry a funding burden of this scale
in 2011 but we are not persuaded that they will be
able to do so again in 2012 given the weak growth
in their own funding base. This raises the prospectof, at best, renewed upward pressure on rates and
the exclusion of the private sector from the credit
market or, at worst, deficit monetisation.
Show me the money
To manage the adjustment of its currency and
public finances in an orderly fashion, it is
essential that Egypt (and Tunisia, which faces
similar, if less pronounced, twin deficits) gain
access to concessional funding from overseas.
It still seems likely to us that this will occur, and
we continue to look for a USD3.2bn IMF
Egypt's external account position is weak... ..and funding the fiscal deficit has been a heavy burden forbanks
0
10
20
30
40
50
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
5.4
5.6
5.8
6.0
6.2
Egypt reserv es (U SDbn) U SD/EGP (R HS)
0
10
20
30
40
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Egypt deposits (% chng y -o-y )
Egypt claims on gov . (% chng, y -o-y )
Source: CBE Source: CBE
A lost year Egypt has stalled since the revolution
-6
-4
-2
0
2
4
6
Q49
Q11
0
Q21
0
Q31
0
Q41
0
Q11
1
Q21
1
Q31
1
Q41
1
Real GDP grow th (% chng, y -o-y)
Source: CBE
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Table Notes
Non - oil producers = Egypt, Jordan, Lebanon, Morocco, Pakistan, TunisiaGCC = Bahrain, Kuwait, Oman, Qatar, Saudi Arabia (KSA), UAE
MENA = Algeria, Bahrain, Egypt, Jordan, Iraq, Kuwait, Lebanon, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Tunisia, UAE
*All regional groupings are weighted by USD nominal GDP
NB: e = estimates, f = forecasts
Egypt fiscal 2011/2012 = Calendar 2012. Fiscal year ends 30 June
Pakistan fiscal 2011/12= Calendar 2012. Fiscal year ends 30 June
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Middle East & NorthAfrica at a glance
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Key forecasts
MENA GCC Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar KSA Tunisia UAE
Real GDP growth (%, y-o-y)2010 5.4 5.6 4.8 4.5 5.1 7.3 3.4 3.3 7.1 3.7 4.7 4.4 14.3 4.1 3.8 5.32011 5.1 6.6 4.4 2.2 1.8 5.6 2.7 4.2 1.7 4.8 4.2 2.1 15.2 6.6 -1.8 4.1
2012f 3.6 3.9 4.6 2.5 1.8 4.1 2.3 3.4 2.3 2.5 4.6 2.9 6.4 4.0 3.5 2.62013f 4.0 4.0 3.5 3.5 3.7 5.8 3.4 3.9 3.9 3.8 4.2 2.7 5.8 3.9 4.7 3.3GDP (USDbn)2010 1983 1091 162 22 209 147 23 145 39 92 60 176 129 448 44 2872011 2424 1393 204 26 237 181 25 189 41 94 78 207 181 587 41 3322012f 2680 1545 221 27 251 209 27 224 44 109 89 225 198 652 48 3562013f 2739 1543 227 28 261 220 30 227 47 117 91 241 201 638 53 358Current Account balance (% GDP)2010 7.5 13.5 14.3 6.3 -2.1 -0.2 -5.4 23.2 -21.0 -5.4 11.0 -2.0 16.4 15.7 -0.4 5.02011 14.0 23.3 9.6 6.6 -1.2 10.5 -20.4 30.3 -25.1 -5.1 13.4 0.3 28.8 27.3 -4.2 12.82012f 14.8 24.0 13.0 8.9 -2.0 12.2 -19.8 32.6 -20.9 -4.4 16.9 -1.2 28.7 26.9 -5.1 13.82013f 9.7 17.0 8.9 5.3 -2.6 5.0 -16.7 27.6 -15.3 -4.0 9.0 -0.9 22.0 17.5 -2.9 9.4CPI (%, end period)2010 5.7 3.8 2.7 1.0 10.7 6.0 6.1 6.0 4.5 2.2 4.2 15.5 0.4 5.4 4.0 1.82011 5.3 3.5 4.0 1.0 11.8 5.0 4.2 3.1 4.0 3.0 3.3 12.5 2.3 5.3 4.2 1.52012f 5.2 3.9 3.5 2.5 9.5 5.0 4.0 4.9 3.5 3.0 4.2 13.1 3.8 4.8 3.3 1.7
2013f 5.5 4.3 4.3 3.0 10.0 5.0 3.0 3.8 3.5 3.0 4.9 12.6 4.7 5.5 4.5 2.2Policy Rate (%)2010 4.00 0.50 8.50 6.00 4.25 2.50 10.00 3.25 2.00 12.50 1.50 0.25 4.50 1.002011 4.00 0.50 8.50 6.00 4.50 2.50 10.00 3.25 2.00 13.50 0.75 0.25 3.50 1.002012f 4.00 0.50 9.50 6.00 4.50 2.50 10.00 3.00 2.00 12.00 0.75 0.25 3.50 1.002013f 4.00 0.50 9.50 5.50 4.50 2.50 10.00 3.00 2.00 12.00 0.75 0.25 3.50 1.00Exchange Rates (vs. USD, year end)2010 74.9 0.376 5.70 1170 0.709 0.281 1508 8.33 0.385 84.6 3.64 3.75 1.44 3.672011 76.1 0.376 5.97 1165 0.709 0.275 1508 8.59 0.385 89.7 3.64 3.75 1.50 3.672012f 75.8 0.376 6.25 1150 0.709 0.275 1508 7.83 0.385 93.0 3.64 3.75 1.35 3.672013f 75.7 0.376 6.60 1135 0.709 0.275 1508 7.79 0.385 95.0 3.64 3.75 1.34 3.67
Fiscal year, ending 30 JuneSource: MENA Central Banks, Ministries of Finance, HSBC estimates and forecasts
GDP (USDbn, 2011) CPI (% chng, y-o-y)
0
100
200
300
400
500
600
KSA
UAE
Egy
pt
Pak
istan
Algeria
Kuw
ait
Qat
ar
Iraq
Morocco
Om
an
Tun
isia
Leb
anon
Jordan
Bah
rain
0
2
4
6
8
10
12
1999
2001
2003
2005
2007
2009
2011
2013f
F'cast
MENA av erage
GCC average
Source: MENA Central Banks, Ministries of Finance, HSBC estimates Source: MENA Central Banks, Ministries of Finance, HSBC estimates and forecasts
Key forecasts
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Household consumption
%, y-o-y 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 5.8 4.8 3.5 6.9 8.3 4.9 5.0 4.0 5.0 4.0Bahrain 3.0 8.6 5.7 2.5 5.1 -2.9 4.2 1.5 2.2 4.0Egypt 2.1 4.8 6.4 4.2 5.7 5.7 4.1 4.5 6.5 4.2Jordan 17.0 5.1 6.3 5.8 4.8 1.7 3.1 3.0 3.0 4.0Iraq - - - - - - - - - -Kuwait 6.2 11.2 7.7 9.0 6.8 3.0 3.0 3.5 3.5 4.0Lebanon 5.3 2.1 -1.0 6.1 9.6 9.1 6.8 2.7 3.0 4.0
Morocco 4.9 2.3 6.9 3.8 6.0 4.6 2.2 6.5 3.0 4.0Oman 6.1 -1.7 9.6 8.8 6.0 3.0 3.4 3.0 4.0 4.0Pakistan 10.1 12.9 1.0 4.7 -2.7 12.2 4.0 7.0 2.5 3.0Qatar 33.6 28.3 17.0 14.5 12.8 4.5 5.0 6.0 6.0 6.0Saudi Arabia 5.3 8.8 10.2 17.7 3.5 6.7 3.2 5.0 4.2 4.0Tunisia 5.3 4.8 4.9 5.2 4.8 3.9 4.5 0.0 3.0 5.0UAE* 22.5 14.1 21.9 25.5 22.3 2.0 3.8 3.5 5.2 6.2
*Nominal data. Fiscal year, ending 30 JuneSource: MENA Central Banks, HSBC estimates and forecasts
Nominal gross savings (% GDP, 2011) Nominal domestic demand (% GDP, 2011)
0
10
20
3040
50
60
Qatar
KSA
Kuwait
Oman
UAE
Bahrain
Morocco
Pakistan
Tunisia
Egypt
Lebanon
Jordan
0
50
100
150
Jordan
Lebanon
Tunisia
Morocco
Pakistan
Egypt
UAE
Oman
KSA
Bahrain
Kuwait
Qatar
Source: MENA Central Banks, HSBC estimates Source: MENA Central Banks, HSBC estimates
Nominal gross savings ratios
% GDP 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 49.6 63.1 71.7 73.3 76.7 44.0 71.7 67.1 77.9 68.3Bahrain 27.7 35.4 38.2 42.7 43.3 33.7 35.4 30.8 32.8 30.4Egypt 21.0 20.9 20.4 22.6 22.8 16.8 17.7 16.5 12.5 10.8Iraq - - - - - - - - - -Jordan 27.7 16.1 19.2 15.1 23.0 24.3 21.5 6.3 7.0 10.1Kuwait 41.5 50.4 59.1 55.3 57.7 37.7 39.6 43.9 44.5 39.9Lebanon -1.6 1.8 11.8 18.0 11.3 11.6 14.2 8.8 12.9 18.6Morocco 30.8 30.6 31.6 32.4 32.9 30.6 29.7 30.3 29.4 29.9Oman 31.6 37.9 41.6 41.7 41.9 27.5 46.7 43.3 45.8 39.8Pakistan 18.4 17.7 18.2 17.7 12.8 13.0 14.6 25.7 24.4 24.7Qatar 55.3 67.8 51.1 54.2 59.1 54.5 55.9 60.6 61.7 58.8Saudi Arabia 34.6 47.2 46.6 45.9 50.7 31.7 38.6 46.9 47.2 41.5Tunisia 26.5 24.7 29.6 25.6 29.2 28.2 24.4 20.6 20.1 22.5UAE 29.8 34.9 36.0 31.7 31.7 29.4 30.9 38.2 39.3 35.9Non oil producers 21.5 20.4 22.1 22.6 21.2 19.0 19.0 20.9 19.2 19.5
GCC 35.0 44.9 45.2 43.4 46.6 34.1 39.1 45.7 46.5 41.9MENA 30.3 37.9 38.9 37.7 39.6 27.6 33.0 37.6 38.3 34.5
Gross savings = Nominal USD GDP minus total consumption. Fiscal year, ending 30 JuneSource: MENA Central Banks, HSBC estimates and forecasts
Consumption & saving
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Private sector credit (% GDP, 2011) Real private sector credit growth (% chng y-o-y, 2011)
0
20
40
60
80
100
Morocco
Jordan
Lebanon
Tunisia
UAE
Bahrain
Kuwait
KSA
Oman
Qatar
Egypt
Pakistan
Algeria
Iraq
-10
-5
0
5
10
Iraq
KSA
Qatar
Lebanon
Jordan
Tunisia
Algeria
Oman
Morocco
Bahrain
UAE
Kuwait
Pakistan
Egypt
Source: MENA Central Banks, HSBC estimates Source: MENA Central Banks, HSBC estimates
Private sector credit
% GDP 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 11.0 11.9 12.4 13.0 12.7 16.1 15.1 13.1 12.6 13.4Bahrain 47.9 47.8 48.2 58.3 67.3 74.5 65.9 57.0 57.7 62.4Egypt 57.8 53.7 51.9 48.1 36.7 33.8 33.0 27.8 25.5 23.4Iraq - - - 3.0 2.9 3.8 5.5 5.1 5.3 6.0Jordan 76.5 86.8 95.9 96.2 85.0 80.0 79.1 81.7 78.5 76.3Kuwait 56.3 50.1 51.7 69.7 62.4 75.1 67.5 54.4 48.2 50.8Lebanon 74.2 66.6 68.3 70.9 70.0 69.5 76.8 79.0 78.2 78.0Morocco 47.8 51.5 57.1 69.7 77.5 80.5 82.9 83.5 85.4 88.5Oman 34.5 30.8 31.1 36.8 37.6 50.7 42.0 36.7 35.6 38.7Pakistan 27.7 30.3 30.5 31.2 26.3 21.0 19.7 16.2 16.5 18.2Qatar 26.8 33.1 39.2 48.1 43.4 55.1 45.2 34.6 38.1 45.0Saudi Arabia 32.3 35.6 34.6 38.6 39.9 50.2 44.3 37.9 39.2 48.1Tunisia 51.4 51.5 50.6 51.1 53.4 55.0 61.5 68.8 69.6 70.7UAE 34.3 39.7 42.4 54.0 63.1 72.9 68.3 59.9 58.7 63.1Non oil producers 45.0 45.9 47.3 49.8 44.8 43.9 42.5 38.0 38.1 39.0GCC 35.7 38.4 39.4 48.2 50.0 61.1 54.1 45.2 45.0 51.2MENA 35.4 37.0 37.5 43.0 42.5 48.0 44.3 38.2 38.0 41.5
Source: MENA Central Banks, HSBC estimates and forecasts. Fiscal year, ending 30 June
Real private sector credit
%, y-o-y 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria* 13.7 30.2 14.3 10.0 10.4 8.8 9.8 3.0 4.5 5.7Bahrain 19.8 17.2 16.6 37.0 33.2 -3.6 -2.1 1.0 3.5 7.0Egypt -6.6 -1.9 3.9 3.3 -28.7 -2.5 -2.9 -10.7 -8.2 -6.5Iraq* - - - - 29.6 19.0 72.8 10.0 13.0 13.0Jordan 15.2 19.6 22.6 8.6 2.4 2.6 2.4 3.8 6.0 9.0Kuwait 23.0 11.0 20.9 28.8 -1.4 2.0 -10.1 -3.6 -4.9 -0.5Lebanon* 3.5 -6.6 0.3 6.6 13.1 11.7 18.3 5.0 1.5 3.5Morocco* 7.1 10.5 17.9 28.3 20.2 8.9 5.2 2.0 5.0 7.0Oman 4.0 4.1 1.7 -2.3 -5.8 5.1 1.8 2.7 1.8 1.1Pakistan 9.1 18.6 9.2 7.8 -13.2 -12.9 -8.7 -10.2 1.9 7.4Qatar 21.5 52.1 46.6 40.2 32.8 13.3 7.5 5.8 16.2 15.3Saudi Arabia 36.6 38.2 7.9 13.9 18.9 -4.8 -0.6 6.7 10.2 14.5Tunisia** 9.7 7.1 5.4 3.3 6.2 5.5 14.5 3.7 3.2 4.5UAE* 18.4 32.7 20.7 37.0 36.0 -0.4 -2.3 -0.1 3.3 5.8Non oil producers 4.4 8.5 8.8 9.8 -8.7 -1.9 -0.4 -6.2 -1.0 2.2GCC 27.2 32.3 15.8 24.4 21.4 -0.2 -1.3 3.2 6.6 9.4MENA 17.5 24.1 13.0 17.6 13.2 1.4 5.3 1.2 5.0 7.4
Adjusted for the rate of inflation. *Claims on the private sector. **Loans to the economySource: MENA Central Banks, HSBC estimates and forecasts
Credit
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Population
Millions 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 32.4 32.9 33.8 34.4 34.5 35.0 35.5 36.0 36.6 37.1Bahrain 0.8 0.9 1.0 1.0 1.1 1.2 1.2 1.2 1.3 1.3Egypt 70.5 71.9 73.6 77.5 79.1 83.5 84.5 85.6 86.8 87.9Iraq 27.1 28.0 28.8 29.7 31.9 32.1 31.4 32.1 32.7 33.4Jordan 5.4 5.6 5.8 5.9 6.1 6.3 6.5 6.6 6.7 6.8Kuwait 2.8 3.0 3.2 3.4 3.4 3.5 3.6 3.7 3.7 3.8Lebanon 3.5 3.6 3.6 3.7 3.7 3.7 3.8 3.9 3.9 4.0
Morocco 30.2 30.5 30.9 31.2 31.6 32.0 32.4 32.8 33.2 33.5Oman 2.4 2.5 2.6 2.7 2.9 2.9 3.0 3.0 3.1 3.1Pakistan 152 156 159 163 166 170 173 177 181 185Qatar 0.7 0.9 1.0 1.2 1.4 1.6 1.7 1.8 1.9 2.0Saudi Arabia 24.0 24.6 25.2 25.9 26.6 27.3 28.0 28.7 29.4 30.1Tunisia 9.9 10.0 10.1 10.2 10.3 10.4 10.5 10.7 10.8 10.9UAE 4.3 4.7 5.0 5.4 5.8 5.7 5.8 6.0 6.2 6.3Non oil producers 272 277 283 291 297 306 311 317 323 328GCC 35.0 36.5 38.0 39.7 41.2 42.2 43.2 44.3 45.5 46.6MENA 366 375 384 395 405 415 421 429 438 446
Source: MENA Central Banks, IMF, HSBC estimates and forecasts. Fiscal year, ending 30 June
Population (Millions, 2011) GDP per capita (USD '000, 2011)
0 20 40 60 80 100 120 140 160 180
BahrainQatar
OmanLebanon
KuwaitUAE
JordanTunisia
KSAIraq
MoroccoAlgeriaEgypt
Pakistan
0
20
40
60
80
100
Qatar
UAE
Kuwait
Oman
Bahrain
KSA
Lebanon
Algeria
Iraq
Tunisia
Jordan
Morocco
Egypt
Pakistan
Source: MENA Central Banks, IMF, HSBC estimates Source: MENA Central Banks, IMF, HSBC estimates
GDP per capita
USD 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 2,637 3,136 3,468 3,929 4,983 3,949 4,563 5,659 6,036 6,122Bahrain 13,639 15,143 16,505 17,773 20,073 16,650 17,762 20,711 21,496 21,633Egypt 1,117 1,239 1,460 1,683 2,056 2,249 2,476 2,773 2,895 2,975Iraq 1,787 1,778 2,385 3,088 4,173 3,709 4,684 5,631 6,389 6,583Jordan 2,114 2,260 2,297 2,566 3,209 3,385 3,578 3,758 4,087 4,477Kuwait 21,586 27,004 31,908 33,737 42,953 35,729 40,515 51,669 60,109 59,850Lebanon 6,064 6,068 6,209 6,859 8,154 9,337 10,227 10,667 11,148 11,791Morocco 2,038 1,871 2,213 2,555 2,691 2,913 2,834 2,881 3,296 3,480Oman 10,213 12,323 14,265 15,292 21,104 16,248 20,445 25,914 28,774 29,050Pakistan 607 669 763 851 974 970 1,038 1,196 1,269 1,327Qatar 42,652 46,862 54,432 58,499 79,580 59,682 75,668 101,624 104,597 99,199Saudi Arabia 10,453 12,843 14,132 14,863 17,936 13,825 16,033 20,480 22,199 21,234Tunisia 3,232 3,062 3,483 3,994 4,062 4,294 4,129 3,831 4,493 4,850UAE 34,214 38,707 44,073 47,874 54,568 47,810 49,689 55,593 57,768 56,397Non oil producers 1,091 1,133 1,294 1,467 1,675 1,777 1,873 2,038 2,185 2,279GCC 15,003 18,170 20,759 22,406 27,594 22,233 25,257 31,425 33,977 33,084MENA 2,610 3,018 3,497 3,909 4,795 4,188 4,709 5,646 6,124 6,145
Source: MENA Central Banks, IMF, HSBC estimates and forecasts. Fiscal year, ending 30 June
Population & GDP/Capita
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Budget balance
% GDP 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 14.1 13.7 13.9 6.2 9.4 -5.7 -1.1 3.1 0.5 -0.7Bahrain 4.1 7.6 4.7 3.1 6.6 -6.0 -5.6 -2.5 -0.1 -3.5Egypt -9.5 -9.6 -8.2 -7.3 -6.8 -6.9 -8.5 -9.4 -11.0 -11.3Iraq -35.4 -10.7 -1.6 8.8 3.9 -12.4 -7.9 0.8 4.0 -3.1Jordan -12.8 -10.9 -8.0 -8.9 -10.1 -12.2 -8.8 -11.5 -11.7 -11.7Kuwait 18.1 24.8 52.0 33.6 38.4 11.2 17.8 20.3 23.7 21.6Lebanon -9.4 -8.6 -13.5 -10.2 -9.7 -8.5 -7.5 -5.2 -5.1 -5.0
Morocco -3.0 -3.9 -1.5 0.7 0.4 -1.1 -1.8 -6.4 -5.9 -5.3Oman 5.1 13.1 10.8 8.1 8.7 -4.6 3.2 9.7 12.5 6.8Pakistan -2.5 -3.0 -4.2 -5.9 -7.9 -5.1 -6.5 -6.1 -5.2 -4.4Qatar 16.4 19.2 7.2 7.3 8.7 11.7 11.6 2.1 10.5 10.3Saudi Arabia 11.4 18.4 21.0 12.2 32.5 -6.1 6.5 13.9 11.6 5.2Tunisia -2.0 -2.4 -6.6 -2.5 -1.1 -2.9 -1.4 -5.3 -5.6 -5.9UAE 7.1 15.9 21.0 17.3 17.0 -10.6 2.3 11.6 12.2 7.6Non - oil producers #REF! -5.6 -5.8 -5.1 -5.4 -5.2 -6.0 -7.2 -7.4 -7.3GCC 10.4 16.9 21.4 14.9 23.3 -2.9 6.6 11.5 12.3 8.4MENA 4.1 9.1 12.1 8.2 13.4 -4.5 1.2 5.0 5.5 2.4
Source: MENA Ministries of Finance, HSBCestimates and forecasts. Fiscal year, ending 30 June
Budget balance (% GDP) Public debt (% GDP, domestic vs. external in 2011)
-10
0
10
20
30
2004
2005
2006
2007
2008
2009
2010
2011
2012f
2013f
-8
-6
-4
-2
0
GCC Non-oil producers (R HS)
0
50
100
150
Lebanon
Egypt
Jordan
Morocco
Iraq
Pakistan
Tunisia
Bahrain
UAE
Algeria
Kuwait
KSA
Qatar
Oman
Domestic debt (% GDP) External debt (% GDP)
Source: MENA Ministries of Finance, HSBC estimates and forecasts Source: Ministries of Finance, IIF, HSBC estimates.
Total government debt
% GDP 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 28.0 25.0 23.6 12.5 8.2 10.4 9.8 7.9 8.2 9.7Bahrain 34.8 33.8 33.0 32.0 33.0 46.2 54.6 38.3 38.6 40.2Egypt 131.1 118.3 108.6 98.4 87.0 88.3 89.8 84.0 87.3 89.3Iraq - - - 109.0 70.6 78.3 65.0 54.1 47.8 46.1Jordan 92.0 82.9 86.1 81.8 66.9 72.5 75.1 78.1 80.9 83.2Kuwait 16.2 14.6 12.4 16.2 14.4 16.2 12.7 11.0 9.6 9.9Lebanon 158.8 177.2 179.9 167.8 156.4 146.4 135.5 136.8 137.4 135.7Morocco 53.9 64.8 55.1 50.5 49.4 46.0 55.0 59.1 51.5 55.8Oman 13.9 8.6 8.0 6.2 4.1 5.5 5.4 3.7 3.2 3.2Pakistan 67.9 61.9 56.4 54.4 50.2 52.5 53.7 50.9 52.6 55.1Qatar 27.8 19.3 13.3 9.3 13.4 14.5 11.1 7.8 9.2 9.9Saudi Arabia 65.4 38.9 27.3 18.5 13.2 15.9 9.9 7.4 6.4 6.3Tunisia 53.9 52.4 48.6 45.8 43.6 43.0 41.5 47.2 47.6 49.9UAE 12.5 14.5 11.7 13.2 13.8 21.1 23.1 21.9 21.3 21.3
Non oil producers #REF! 86.3 79.4 73.9 68.6 69.8 72.3 70.5 70.8 73.0GCC 39.6 26.5 19.2 15.6 13.4 17.4 14.5 11.8 11.0 11.2MENA 51.5 41.8 35.0 37.0 31.0 37.4 34.9 30.3 29.4 30.8
Source: MENA Ministries of Finance, IIF, H SBC estimates and forecasts. Fiscal year, ending 30 June
Public finances
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External debt
USD bn 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 22 17 6 5 5 6 6 7 8 9Bahrain 6 7 8 9 10 10 11 11 11 12Egypt 30 29 30 30 34 32 34 35 41 44Iraq 142 109 98 102 97 93 95 96 97 98Jordan 13 13 14 15 14 14 15 16 18 20Kuwait 15 20 31 58 61 58 60 63 66 67Lebanon 28 29 31 32 34 35 35 37 37 39
Morocco 17 16 17 19 20 20 21 21 22 22Oman 6 6 6 7 9 8 8 9 9 10Pakistan 33 33 34 37 40 46 52 56 63 70Qatar 13 18 26 42 57 84 104 109 115 120Saudi Arabia 38 45 55 89 96 100 104 107 112 117Tunisia 19 19 18 19 22 21 20 22 25 27UAE 40 58 93 149 160 164 163 183 190 205Non oil producers 140 139 144 152 164 168 178 187 205 224GCC 118 154 220 354 393 424 450 482 503 530MENA 423 420 468 613 658 691 728 772 813 860
Note: External debt is total government plus non government external debt. Fiscal year, ending 30 JuneSource: MENA Central Banks, IMF IFS, IIF, HSBC estimates and forecasts
External debt (USDbn) External debt (% GDP, 2011)
0
50
100
150
200
Algeria
Bahrain
Egypt
Iraq
Jordan
Kuwait
Lebanon
Morocco
Oman
Pakistan
Qatar
Saudi
Arabia
Tunisia
UAE
2011 2012f 2013f
0102030405060708090
100
Lebanon
Jordan
Qatar
UAE
Iraq
Tunisia
Bahrain
Kuwait
Pakistan
Morocco
KSA
Egypt
Oman
Algeria
Source: MENA Central Banks, IMF IFS, IIF, HSBC estimates and forecasts Source: MENA Central Banks, IMF IFS, IIF, HSBC estimates and forecasts
External debt
% GDP 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 26.0 16.4 5.5 3.6 3.0 4.1 3.8 3.4 3.5 3.8Bahrain 56.0 52.7 50.6 49.6 46.9 53.5 48.1 41.4 40.7 42.4Egypt 37.9 32.5 27.5 22.9 20.8 16.8 16.1 14.7 16.3 17.0Iraq 293.7 219.8 142.5 111.2 72.6 78.0 64.5 53.0 46.3 44.6Jordan 127.7 113.1 111.1 113.2 90.9 72.6 72.9 70.7 73.0 73.5Kuwait 26.0 25.0 30.4 50.2 41.3 45.9 41.2 33.3 29.5 29.4Lebanon 132.5 133.5 137.4 127.1 112.3 100.9 91.1 89.2 85.2 84.3Morocco 29.6 27.2 26.3 24.7 22.7 21.8 20.4 20.0 19.1 18.1Oman 22.9 18.6 17.1 17.5 14.1 16.8 13.7 11.4 10.4 10.6Pakistan 36.5 32.3 28.5 27.4 25.5 28.6 29.7 27.0 27.8 29.2Qatar 39.8 42.0 46.3 58.8 49.5 85.7 80.8 60.3 58.1 59.8Saudi Arabia 15.3 14.3 15.5 23.2 20.2 26.5 23.2 18.2 17.2 18.4Tunisia 60.3 58.9 52.8 49.3 48.8 48.2 46.0 49.1 50.7 52.0UAE 27.2 32.2 41.9 57.7 50.7 60.8 56.7 55.0 53.4 57.2
Non oil producers 48.5 44.3 39.8 36.5 33.3 31.4 30.4 28.5 29.2 30.0GCC 22.6 23.2 27.8 39.8 34.5 45.2 41.2 34.6 32.6 34.4MENA 44.7 37.1 35.0 40.0 34.0 39.9 36.7 31.7 30.4 31.5
Source: MENA Central Banks, IMF IFS, IIF, HSBC estimates and forecasts. Fiscal year, ending 30 June
External debt
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Central bank reserves (incl. gold, excluding sovereign wealth funds)
USD bn 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 43 56 78 110 143 149 163 183 212 232Bahrain 2 2 3 4 4 4 5 4 5 5Egypt 15 19 23 31 35 31 35 26 14 22Iraq 8 12 20 31 50 44 50 57 61 65Jordan 5 5 7 8 9 12 13 12 12 12Kuwait 7 8 12 16 17 18 19 20 21 22Lebanon 12 12 13 13 20 29 29 31 33 34
Morocco 16 16 20 24 22 22 22 23 24 25Oman 2 2 4 5 5 5 6 6 7 7Pakistan 11 10 11 13 9 10 13 14 13 13Qatar 3 5 5 9 10 18 31 34 38 41Saudi Arabia 27 155 226 305 442 410 440 535 608 648Tunisia 4 4 7 8 9 11 9 7 8 10UAE 18 21 28 77 32 35 37 41 45 51Non oil producers 62 67 81 97 103 115 121 113 103 117GCC 60 193 278 417 509 490 537 640 723 774MENA 174 328 456 655 805 798 871 993 1099 1187
Fiscal year, ending 30 June.Source: MENA Central Banks, IMF IFS, HSBC forecasts
Central bank reserves (months of import cover, 2011) Central bank reserves including estimated sovereign wealth funds (% ofGDP, 2011)
0
5
10
1520
2004
2005
2006
2007
2008
2009
2010
2011
2012f
2013f
Non-oil producers GCC
0
50
100
150
200250
UAE
Kuwait
Algeria
KSA
Lebanon
Qatar
Bahrain
Jordan
Iraq
Morocco
Oman
Tunisia
Egypt
Pakistan
Source: MENA Central Banks, IMF IFS, Monitor Group, HSBC estimates Source: MENA Central Banks, IMF IFS, Monitor Group, HSBC estimates
Central bank reserves Import cover
Months 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 23.7 27.2 36.4 39.4 35.0 36.3 34.9 33.4 37.7 37.9Bahrain 3.8 3.0 3.8 4.5 3.2 4.4 5.2 3.6 3.6 4.1Egypt 7.4 7.3 6.9 7.9 6.4 6.1 6.8 4.9 2.1 2.8Iraq 4.2 9.6 15.1 22.8 20.8 17.7 19.4 21.3 21.7 21.9Jordan 8.4 6.6 7.5 7.3 6.6 10.6 10.7 7.5 6.8 6.8Kuwait 4.9 4.3 5.4 5.7 5.1 6.3 6.2 6.1 5.8 5.4Lebanon 10.9 11.6 12.7 11.3 11.5 15.4 14.9 15.6 15.4 15.4Morocco 9.9 8.5 9.3 8.4 5.7 7.3 6.3 6.3 6.3 5.9Oman 3.9 4.7 4.4 5.9 5.2 6.9 6.5 4.8 4.6 4.2Pakistan 7.2 5.1 4.6 5.3 2.4 4.2 5.5 5.1 4.6 4.3Qatar 5.7 5.5 5.9 4.1 3.7 7.7 13.7 11.2 11.2 11.0Saudi Arabia 3.9 21.4 24.1 25.4 30.2 30.7 32.7 35.6 34.1 30.9Tunisia 3.4 3.6 4.9 4.5 4.0 6.3 4.7 3.1 3.1 3.3UAE 2.8 2.7 2.9 5.6 1.7 2.2 2.2 2.1 2.1 2.2
Non oil producers 7.4 6.6 6.7 6.7 5.4 6.8 6.6 5.7 4.6 4.7GCC 3.6 10.5 12.5 13.9 13.4 14.9 15.2 16.0 16.0 15.3MENA 6.1 10.3 12.1 13.4 12.7 14.1 14.4 14.6 14.5 14.1
Source: MENA Central Banks, IMF IFS, HSBCforecasts. Fiscal year, ending 30 June
Reserves
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Exchange rates
(local curr vs.USD, period end) 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 72.6 73.4 71.2 66.8 71.2 72.7 74.9 76.1 75.8 75.7Bahrain 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38Egypt 6.19 5.79 5.76 5.69 5.33 5.59 5.70 5.97 6.25 6.60Iraq 1462 1479 1391 1216 1172 1170 1170 1165 1150 1135Jordan 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71Kuwait 0.29 0.29 0.29 0.27 0.28 0.29 0.28 0.28 0.28 0.28Lebanon 1508 1508 1508 1508 1508 1508 1508 1508 1508 1508
Morocco 8.22 9.25 8.46 7.71 8.10 7.86 8.33 8.59 7.83 7.79Oman 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38Pakistan 58.1 59.6 60.2 60.5 68.0 81.4 84.6 89.7 93.0 95.0Qatar 3.64 3.64 3.64 3.64 3.64 3.64 3.64 3.64 3.64 3.64Saudi Arabia 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75Tunisia 1.21 1.36 1.30 1.22 1.31 1.31 1.44 1.50 1.35 1.34UAE 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67
Source: MENA Central banks, HSBC forecasts. Fiscal year, ending 30 June
Policy rate (%) in 2011 Real policy rate (%) in 2011
0
2
4
68
10
12
14
Algeria
Bahrain
Egypt
Iraq
Jordan
Kuwait
Lebanon
Morocco
Oman
Pakistan
Qatar
KSA
Tunisia
UAE
-6
-4
-2
0
2
4
6
Algeria
Bahrain
Egypt
Iraq
Jordan
Kuwait
Lebanon
Morocco
Oman
Pakistan
Qatar
KSA
Tunisia
UAE
Source: MENA Central Banks Source: MENA Central Banks
Policy rate
% pa, period end 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00Bahrain - - - 4.00 0.75 0.50 0.50 0.50 0.50 0.50Egypt 10.00 10.00 9.00 9.00 11.50 8.50 8.50 8.50 9.50 9.50Iraq 6.00 7.00 16.00 20.00 15.00 7.00 6.00 6.00 6.00 5.50Jordan 3.75 6.50 7.50 7.00 6.25 4.75 4.25 4.50 4.50 4.50Kuwait 4.75 6.00 6.25 6.25 3.75 3.00 2.50 2.50 2.50 2.50Lebanon 20.00 12.00 12.00 12.00 12.00 10.00 10.00 10.00 10.00 10.00Morocco 3.25 3.25 3.25 3.25 3.32 3.31 3.25 3.25 0.00 0.00Oman 1.61 4.15 6.34 6.02 1.97 2.00 2.00 2.00 2.00 2.00Pakistan 7.50 9.00 9.00 9.50 12.00 14.00 12.50 13.50 12.00 12.00Qatar 4.95 4.40 5.15 4.00 2.00 1.50 1.50 0.75 0.75 0.75Saudi Arabia 2.25 4.25 4.70 4.00 1.50 0.25 0.25 0.25 0.25 0.25Tunisia 5.00 5.00 5.25 5.25 5.25 4.50 4.50 3.50 3.50 3.50UAE 2.95 4.70 4.75 4.25 1.50 1.00 1.00 1.00 1.00 1.00
Source: MENA Central banks, HSBC forecasts. Fiscal year, ending 30 June
Exchange rates & interest rates
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Money isnt everything
May 10 will see Algerias secular government
facing its biggest challenge in two decades as
seven Islamist parties, led by the Green Alliance,
contest parliamentary elections. Although activists
maintain that electoral reforms were superficial,
trends elsewhere in the region, as well as
historical example, suggest that the Islamist
parties should do better this time around.
This would not necessarily mean dramatic policy
shifts: the FLN and RNDs support networks are
so established that they are likely to retain a
strong presence in government. But the
withdrawal of the Movement of Society for Peace
(MSP) from the ruling coalition to stand with the
Green Alliance has created a significant
opposition challenge, and the next government is
likely to be more fragmented than the current one.
A relatively strong showing for Islamist parties
could see Algeria in a similar position to
Morocco, with pre-emptive democratic reforms
reducing the risk of more turbulent politicalchange. Disappointment or perceptions of
electoral fraud could lead to some protests, but
memories of the decade-long civil war should be
sufficient to prevent history from repeating itself.
Whoever is in government faces the challenge of
turning Algerias wealth into jobs for its young
population. For now, the focus seems to be on
saving, rather than investing. Strong oil revenues
allowed the Banque dAlgerie to add USD20bn to
its reserves in 2011, and the government to pay
down a further USD1bn of its debt.
There is little evidence, though, that this wealth is
feeding through into growth and job creation.
Growth in government spending is largely in
recurrent outlays, which were up nearly 40% y-o-
y in 2011, as opposed to investment, which rose
only 3% (against 5% inflation). Industrial
production also looks sluggish and private sector
credit accounts for just 13% of GDP. The opening
of the (tiny and illiquid) Algiers Stock Exchange
to foreign investors in March 2012 is a good start,
but in general, capital markets are nascent. We
also have some concerns about inflation, which
spiked to 7.5% y-o-y in January higher than the
levels which brought protesters out into the streets
in the same month of 2011.
Algeria
Key data and forecasts
2006 2007 2008 2009 2010 2011 2012f 2013f
GDP (% y-o-y) 2.8 3.8 3.6 2.7 4.8 4.4 4.6 3.5Current account (% GDP) 25.0 23.0 20.5 1.0 14.3 9.6 13.0 8.9Budget Balance (% GDP) 13.9 6.2 9.4 -5.7 -1.1 3.1 0.5 -0.7Trade Balance (% GDP) 27.9 24.2 22.3 4.1 5.3 13.0 16.4 12.5CPI (% end year) 3.7 4.9 5.7 6.0 2.7 4.0 3.5 4.3Public Debt (% GDP) 23.6 12.5 8.2 10.4 9.8 7.9 8.2 9.7
External Debt (% GDP) 5.5 3.6 3.0 4.1 3.8 3.4 3.5 3.8Policy rate (% end year) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0USD/DZD (end year) 71.2 66.8 71.2 72.7 74.9 76.1 75.8 75.7EUR/DZD (end year) 92.5 96.1 97.1 100.8 98.3 98.0 99.1 99.6
Source: Algeria Central Bank, Ministry of Finance, IMF IFS, Office of National Statistics, HSBC estimates and forecasts
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Holding up, not bouncing back
Full year growth numbers suggest the Bahraini
economy held up in 2011, with real GDP
expanding by 2.2%. The main sectors hit by the
political unrest were real estate (-5%),
construction (-3%) and hotels and restaurants (-
13%). However, the oil sector was up 3%, and
manufacturing (+4%) and finance (+3%) also put
in good performances.
Private sector credit also picked up quite
substantially in the second half of 2011, and
although it has dropped off somewhat more
recently, the y-o-y rate of 15% in January is still
remarkably robust. Deposit growth stood at 10% y-
o-y in the same month again an indication of a
relatively resilient banking sector performance.
Despite this, and despite the fact that we see a
small pick-up in growth this year, Bahrain will
still have the lowest rate of growth in the GCC in
2012, in our view. Political turmoil, which sent
growth negative in 1Q11, has resumed in 1Q12,
and will weigh on investor and consumerconfidence at least through the first half of the
year. While protests on the anniversary of the
beginning of last years unrest proved quieter than
anticipated, the pace has picked up since then,
with several large scale rallies, ongoing clashesand at least three deaths. Dialogue between the
government and the official opposition (Islamist
political society al-Wefaq) has resumed, but it is
unclear that the former is prepared to make the
kind of concessions protesters are demanding.
Moreover, a recent Reuters report points to a
growing rift between the al-Wefaq leadership and
many of the protesters, suggesting that even if an
agreement is reached with the government, the
unrest could continue. Already, the groupsleaders calls not to escalate rallies into violence
appear to be going unheeded.
One positive for Bahrains embattled government
this year will be higher oil prices. However, even
assuming an average price of USD120/bbl, we
think Bahrain will manage only to balance its
budget, not return to surplus. That said, we have
few worries about Bahrains creditworthiness;
ultimately, promised GCC funding would likely
materialise should the public finance situation
worsen markedly.
Bahrain
Key data and forecasts
2006 2007 2008 2009 2010 2011 2012f 2013f
GDP (% y-o-y) 6.7 8.4 6.3 3.1 4.5 2.2 2.5 3.5Current account (% GDP) 13.8 15.7 9.4 6.3 6.3 6.6 8.9 5.3Budget Balance (% GDP) 4.7 3.1 6.6 -6.0 -5.6 -2.5 -0.1 -3.5Trade Balance (% GDP) 27.5 14.7 13.9 11.5 11.2 22.6 25.5 22.9CPI (% end year) 2.1 4.1 5.1 1.6 1.0 1.0 2.5 3.0Public Debt (% GDP) 33.0 32.0 33.0 46.2 54.6 38.3 38.6 40.2
External debt (% GDP) 50.6 49.6 46.9 53.5 48.1 41.4 40.7 42.4Policy rate (% end year) NA 4.00 0.75 0.50 0.50 0.50 0.50 0.50USD/BHD (end year) 0.376 0.376 0.376 0.376 0.376 0.376 0.376 0.376EUR/BHD (end year) 0.496 0.508 0.526 0.538 0.508 0.534 0.541 0.545
Source: Bahrain Central Bank, Ministry of Finance, Bahrain Central Informatics Organisation, HSBC estimates and forecasts
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End of the beginning
Egypts post-Mubarak political process continues
to make material progress. Parliamentary
elections were completed on schedule in February
2012. They were accompanied by few allegations
of fraud, delivering Egypt its most credible
legislature in a generation. The elections have
paved the way for the rewriting of the
constitution, and presidential elections in late May
2012. This will be followed by the appointment of
a new, permanent government, opening the way
for more effective policymaking in the second
half of the year.
The ambiguous balance of power between
Egypts military and emergent democratic
institutions could lead to strains, but we are
encouraged by the readiness both sides have
shown to compromise. Some may still view the
emergence of the Muslim Brotherhood as leaders
of the new political process with suspicion, but
most have been reassured by the pragmatic policy
agenda and strong support for the private sectorthat the Islamist movement has outlined.
Nevertheless, enormous challenges remain.
Economic activity remains very weak, with sharp
falls in investment and exports and stagnantconsumption keeping growth low and driving
unemployment upward. More acutely, the central
banks decision to protect the value of the
Egyptian pound has cost it more than 60% of its
reserves, which stood at just three months of
import cover at the end of February. Interest rates
also remain very high as a consequence of the
governments heavy funding requirement which
has crowded the private sector out of the credit
market and pushed up the cost of existing funds.
We expect the IMF to deliver some USD3bn in
financial support in the near term and look for
others to follow through on pledges they made in
the aftermath of the revolution. Even with this
backing, we expect to see the currency weaken
significantly and the fiscal deficit remain wide.
Without it, however, Egypt will likely find its
funding needs very difficult to meet from its
remaining domestic resources, increasing the risk
of a painful and disorderly economic adjustment.
Key data and forecasts
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12f 2012/13f
GDP (% y-o-y) 6.8 7.1 7.2 4.7 5.1 1.8 1.8 3.7Current account (% GDP) 1.6 1.7 0.5 -2.4 -2.1 -1.2 -2.0 -2.6Budget Balance (% GDP) -8.2 -7.3 -6.8 -6.9 -8.5 -9.4 -11.0 -11.3Trade Balance (% GDP) -11.2 -12.5 -14.4 -13.4 -12.0 -10.0 -11.0 -13.2Core CPI (% end year) 6.3 6.3 20.7 7.9 6.7 8.9 8.5 7.2Headline CPI (%, end year) 7.3 8.5 20.2 10.0 10.7 11.8 9.5 10.0Public Debt (% GDP) 108.6 98.4 87.0 88.3 89.8 84.0 87.3 89.3
External debt (% GDP) 27.5 22.9 20.8 16.8 16.1 14.7 16.3 17.0Policy rate (% end year) 9.0 9.0 11.5 8.5 8.5 8.5 9.5 9.5USD/EGP (end year) 5.76 5.69 5.33 5.59 5.70 5.97 6.25 6.60EUR/EGP (end year) 7.36 7.40 8.40 7.85 6.95 7.46 8.75 9.24
Source: Egypt Central Bank, Ministry of Finance, CAPMAS, HSBC estimates and forecasts. Egypt fiscal 2011/2012 = Calendar 2012
Egypt
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So rich and yet so poor
Iraq has long been a political risk story, but we are
launching quarterly coverage at a time of
exceptionally challenging circumstances. Betweenthe destabilisation of Syria and the tightening
squeeze on Iran, the situation has worsened
substantially for Iraq. Locally, the departure of US
troops in December 2011 has coincided with a
perceived political marginalisation of the Sunni
community, blamed in part for the uptick in
violence in the first quarter of 2012.
Political risk has stood in the way of investment
since the 2003 conflict, with FDI inflows,
particularly outside of Kurdistan, among the
lowest in the region. As a consequence, Iraq,
despite having the second highest level of oil
production amongst the 14 countries we cover,
ranks 9th in terms of 2011 GDP per capita
beneath Lebanon and Algeria according to our
estimates. Non-oil exports account for less than
1% of GDP, and government spending growth
particularly in the investment category has
significantly underperformed revenue growth.
Of course, the silver lining of the uptick in
geopolitical risk is that both oil prices and
production for Iraq are on the rise: a Reuters
report from March 5 quoted Deputy Prime
Minister Hussein al-Shahristani as saying that
Iraqi oil production has exceeded 3mn b/d for the
first time since 1979. We expect output to
continue to rise, bringing in over USD90bn in
2012, and leaving a comfortable current account
and fiscal surplus.
Even if OPEC did shift into hawkish mode, which
looks unlikely in the present climate, Iraq remains
exempt from their quotas, meaning export
volumes can continue to rise. Indeed, risks to our
forecasts are to the upside if the law on oil
revenue allocation is finally passed, or additional
sweeteners are provided to global oil majors
looking to invest in the southern fields. That said,revenues may be rising, but Iraqs breakeven oil
price is rising too: we estimate it needs an oil
price of USD106/b to balance its budget in 2012.
The other positive is, of course, the Kurdistan
story. Political stability and a strong business
climate have paid dividends for the northern
region, but it remains subject to the unpredictable
legislative environment in Baghdad. Overall, the
country will continue to perform below potential if
the political climate constrains progress on reform,and deters investment. What growth we see in
2012-13 will be driven largely by the oil sector.
Key data and forecasts
2006 2007 2008 2009 2010e 2011f 2012f 2013f
GDP (% y-o-y) 10.2 1.4 6.6 9.3 7.3 5.6 4.1 5.8Current account (% GDP) 1.8 21.9 21.4 -1.0 -0.2 10.5 12.2 5.0Budget Balance (% GDP) -1.6 8.8 3.9 -12.4 -7.9 0.8 4.0 -3.1Trade Balance (% GDP) 15.1 21.9 21.2 0.8 5.3 15.5 17.2 10.4CPI (% end year) 53.2 30.8 2.7 -2.8 6.0 5.0 5.0 5.0Public Debt (% GDP) 0.0 99.9 93.9 93.3 95.5 97.8 99.9 101.3
External debt (% GDP) 142.5 111.2 72.6 78.0 64.5 53.0 46.3 44.6Policy rate (% end year) 16.0 20.0 15.0 7.0 6.0 6.0 6.0 5.5USD/IQD (end year) 1391 1216 1172 1170 1170 1165 1150 1135EUR/IQD (end year) 1836 1642 1641 1673 1580 1654 1656 1646
Source: Iraq Central Bank, Ministry of Finance, Iraq Central Organization of Statistics & Information Technology (COSIT), HSBC estimates and forecasts
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Depressed
Jordan continues to struggle against the impact of
slowing tourist arrivals, higher oil prices and a
difficult political environment. We still do not see
it as a regime under threat: small-scale rallies
have continued, but even on the anniversary of the
protest movement March 24 the number of
attendees was only in the hundreds. Rather, it is a
story of stagnation. Prime Minister Awn
Khasawnehs new government has now been in
power since October 2011, but there has been
little in the way of political or economic reform.
What growth we are seeing appears to be
externally driven: exports were up 13% in 2011
(6% in real terms), which corresponds with some
good numbers on the GDP front: the mining and
quarrying sector was up 14% y-o-y in real terms
in 3Q11, while manufacturing rose 4% (driving an
overall GDP reading of 2.6% in 3Q11). However,
as well as being vulnerable to a soft global
demand climate, this export growth was also
dwarfed by a 30% increase in imports. Moreover,
tourist arrivals were down 22% in 2011.
FDI inflows (USD0.8bn in the first three quarters
of 2011) and foreign grants (USD1.2bn) mitigated
against a severe worsening of the balance ofpayments, but there were clear signs of stress.
Reserves were down USD2bn (11%) y-o-y in
December 2011, and were still falling in January.
In addition, the Central Bank of Jordan raised
rates by 50bps on February 6, in an apparent bid
to shore up the currency. (Inflation was, and is,
under control).
On the domestic front, the picture is not much
better. Public finances are tight. Full year data are
not available but annualising January-November
numbers suggests a deficit of 11.5% of GDP in
2011 (excluding grants). Jordan recently raised
the price of gas, in response to the shortages
following attacks on the Egyptian pipeline a
sign of a more conservative fiscal policy which
we expect to persist: the country also breached its
own debt ceiling in 2011. This, alongside high
unemployment and slowing credit growth,
suggests significant constraints on domestic
demand going forward.
Key data and forecasts
2006 2007 2008 2009 2010 2011 2012f 2013f
GDP (% y-o-y) 8.0 7.2 6.6 2.1 3.4 2.7 2.3 3.4Current account (% GDP) -13.1 -18.9 -10.3 -5.3 -5.4 -20.4 -19.8 -16.7Budget Balance (% GDP) -8.0 -8.9 -10.1 -12.2 -8.8 -11.5 -11.7 -11.7Trade Balance (% GDP) -38.3 -42.3 -36.4 -29.6 -29.4 -42.6 -41.7 -38.7CPI (% end year) 3.4 7.1 13.1 -0.5 6.1 4.2 4.0 3.0Public Debt (% GDP) 86.1 81.8 66.9 72.5 75.1 78.1 80.9 83.2External debt (% GDP) 111.1 113.2 90.9 72.6 72.9 70.7 73.0 73.5Policy rate (% end year) 7.50 7.00 6.25 4.75 4.25 4.50 4.50 4.50USD/JOD (end year) 0.709 0.709 0.709 0.709 0.709 0.709 0.709 0.709EUR/JOD (end year) 0.936 0.957 0.993 1.014 0.957 1.007 1.021 1.028
Source:Jordan Central Bank, Ministry of Finance, Jordan Department of Statistics, HSBC estimates and forecasts
Jordan
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abc
New parliament, old politics
Elections in February brought 26 new faces to
power a substantial proportion of the 50 seats in
parliament. Many of these were Islamist in
leaning, emphasising that the Gulf is not immune
to political trends seen elsewhere in the MENA
region (particularly since the Arab Spring).
However, we do not expect this to translate into a
change in the policymaking environment. The
opposition took just one seat in the cabinet
(appointed by the emir), suggesting that
longstanding tensions between the legislative and
the executive will continue. Corruption will remain
high on the parliamentary agenda, and religious
issues may also gain some airtime, albeit without
making a major impact on policy in all likelihood.
One thing the politicians did manage to agree on
was a 25% wage rise for public sector workers (and
a 12.5% increase for pensioners), announced in
March 2012, following large scale strikes, most
recently by Kuwait Airways staff and customs
officials. The increase follows a number of payrises and grants announced last year in the wake of
protests, to the point where Finance Minister
Mustapha al-Shamali warned in November 2011
that salaries now accounted for 85% of budgeted
oil revenues. The central bank governor alsoresigned after 25 years in the post back in February,
claiming that government spending policies were
preventing the bank from doing its job.
We, too, have concerns about spending, not only
from a fiscal sustainability point of view, but also
in terms of its impact on the private sector. If
public sector wages have to be replicated by the
private sector, this could not only hit firms at the
margins, it could also drive consumer prices up.
Indeed, there is no real sign that higher oil prices
and government spending are trickling down to
the private sector. Bank credit to non-government
borrowers rose just 2.6% over 2011, below the
rate of inflation (3.1%). The stock market is up
around 7% year to date, but this is a smaller rise
than that seen in the UAE and Saudi Arabia. All
in all, we see high oil production and prices
driving growth this year, while the private sector
continues to struggle in a difficult business and
political environment.
Kuwait
Key data and forecasts
2006 2007 2008 2009 2010 2011 2012f 2013f
GDP (% y-o-y) 5.2 4.4 4.4 -1.2 3.3 4.2 3.4 3.9Current account (% GDP) 43.2 34.9 40.0 22.5 23.2 30.3 32.6 27.6Budget Balance (% GDP) 52.0 33.6 38.4 11.2 17.8 20.3 23.7 21.6Trade Balance (% GDP) 38.2 35.9 42.4 26.8 30.8 35.2 37.2 32.6CPI (% end year) 3.7 7.5 9.0 2.1 6.0 3.1 4.9 3.8Public Debt (% GDP) 12.4 16.2 14.4 16.2 12.7 11.0 9.6 9.9
External debt (% GDP) 30.4 50.2 41.3 45.9 41.2 33.3 29.5 29.4Policy rate (% end year) 6.25 6.25 3.75 3.00 2.50 2.50 2.50 2.50USD/KWD (end year) 0.289 0.273 0.276 0.287 0.281 0.275 0.275 0.275EUR/KWD (end year) 0.382 0.369 0.386 0.410 0.380 0.391 0.396 0.399
Source: Kuwait Central Bank, Ministry of Finance, Kuwait Central Statistics Office, HSBC estimates and forecasts
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abc
Not like the rest
Lebanon continues to stand apart from the rest of
the region: its economy boomed during the global
slowdown, and entered a cyclical decline as its
neighbours began to recover. As significant protests
were mounted all around it in 1Q11, Lebanons own
domestic political scene remained stable, and as its
neighbours struggle under the weight of political
risk, higher oil prices and a downturn in global
demand, Lebanon looks relatively resilient.
That is not to say that Lebanon has not been hit by
the Arab Spring effect. Tourist arrivals were down
16% y-o-y in 2011, construction permits were flat,
and the USD2bn balance of payments deficit
suggests that limited financial flows were
forthcoming to offset the loss in service export
revenues and the gaping trade deficit in 2011.
However, in spite of all this, Lebanon continues to
show relative strength. It is the only oil importer in
the region to have increased its reserves in 2011 (by
USD2.2bn to USD31bn, or the equivalent of 18.5
months of goods import cover). At the same time,
deposits in the banking sector were up USD10bn,and credit in LBP terms rose 24%.
In part this reflects relatively high levels of risk
tolerance in a country which has been politically
unstable for the best part of the last three decades.This confidence continues to translate not only into
private consumption, but also into remittances from
the Diaspora, which keep the banking system liquid,
allowing it in turn to support what remains a
precarious public finance position.
Indeed, despite some improvement Lebanon is
also the only MENA oil importer to have reduced
its budget deficit in 2011 public debt is the
countrys single biggest structural weakness.
Though down on its peak, at just below 140% of
GDP, Lebanons debt stock is one of the highest in
the world and continues to rise in absolute terms.
While a still-confident expat community and stable
exchange rate make this manageable for now, it
does expose Lebanon to a downturn in risk appetite,
particularly in the event of the troubles in Syria
spilling over the border. Any international sanctions
on Syrian money deposited abroad could also affect
the Lebanese banking sector.
Lebanon
Key data and forecasts
2006 2007 2008 2009 2010 2011 2012f 2013f
GDP (% y-o-y) 0.9 8.1 9.3 8.9 7.1 1.7 2.3 3.9Current account (% GDP) -6.7 -5.2 -14.3 -22.7 -21.0 -25.1 -20.9 -15.3Budget Balance (% GDP) -13.5 -10.2 -9.7 -8.5 -7.5 -5.2 -5.1 -5.0Trade Balance (% GDP) -27.4 -31.4 -37.3 -36.5 -35.7 -37.4 -37.4 -35.8CPI (% end year) 5.6 9.3 5.5 3.4 4.5 4.0 3.5 3.5Public Debt (% GDP) 179.9 167.8 156.4 146.4 135.5 136.8 137.4 135.7
External debt (% GDP) 137.4 127.1 112.3 100.9 91.1 89.2 85.2 84.3Policy rate (% end year) 12.0 12.0 12.0 10.0 10.0 10.0 10.0 10.0USD/LBP (end year) 1508 1508 1508 1508 1508 1508 1508 1508EUR/LBP (end year) 1990 2035 2111 2156 2035 2141 2171 2186
Source: Lebanon Central Bank, Ministry of Finance, Lebanon Statistics Department, HSBC estimates and forecasts
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Northern Star
Moroccos economy grew by 4.8% in 2011, a
remarkably resilient performance given the impact
of the Arab Spring, as well as the travails of
Moroccos biggest trading partners in Europe. The
rate is likely the highest in North Africa for 2011,
and reaffirms our positive view on Morocco as a
haven of relative political and economic stability
in what has recently been an exceptionally
troubled region.
Indeed, the statement published by the Haut
Commissariat au Plan cites real growth of 7% inprivate consumption: a pace of expansion it
attributes to the wage rises announced in 1Q11, as
well as a 7% increase in remittances from
Moroccans abroad and a 10% increase in consumer
credit all of which occurred against a backdrop of
just 1% inflation. Exports grew by 8%, while gross
fixed capital formation was up 5%.
As we have argued before, despite our belief in
Moroccos fundamental strengths, it is hard to see
this degree of resilience continuing into 2012. On the
plus side, the political situation has stabilised there
have been no large scale political protests in 2012.
Despite the Islamist Parti de la Justice et
Developpement (PJD) taking several key
government roles, including that of prime minister,there has been no suggestion of a more conservative
social policy which could harm the tourism industry.
Instead, Premier Abdelilah Benkirame has said his
focus is on reducing unemployment to 8%, by
targeting 5.5% annual GDP growth.
We, and the central bank, are less optimistic. The
central bank cut rates by 25bps on March 27,
predicting growth of 2-3%, in line with our own
forecast. We are also concerned that strong
growth in 2011 has not improved Moroccosunemployment rate, which stood at 9.1% in 3Q11
unchanged from end-2010 (with the rate among
females having risen to 11%).
Meanwhile, the budget deficit widened to 6.4% of
GDP in 2011, and will narrow only slightly in o