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Growth expected to rebound in the Middle East economies

The region’s economic growth is set to bounce back this year thanks to recovering oil prices and easing fiscal consolidation measures.

A new study forecasts the Middle East economies will grow by an average of 2.4 per cent in 2018 after a difficult year, in which GDP growth slowed to 1 per cent. Improved security conditions and progress with economic reforms will help accelerate growth, according to the second quarter Economic Insight Middle East report released by the UK’s Oxford Economics and the regional chapter of the Institute of Chartered Accountants in England and Wales.

Oil prices volatile in July, before ending month 3 per cent down

The decision by the Opec+ group to relax self-imposed oil output restrictions had a profound impact on crude prices in July, with global benchmark Brent crude caught between bouts of gains and losses. Oil prices fell by an average of 3 per cent, ending the month at about $73 a barrel.

The market searched for direction amid comments from Opec’s de facto leader Saudi Arabia that the producer will not flood the market with oil as production cuts ease, and the end of the Norwegian oil field workers strike, which threatened output from the North Sea.

Saudi Arabia’s Oil Minister Khalid al-Falih arrives at an Opec meeting in Vienna, Austria, on 22 June

Saudi Arabia’s Oil Minister Khalid al-Falih arrives at an Opec meeting in Vienna on 22 June

Riyadh counters claims that it will oversupply oil market

Saudi Arabia’s Opec governor, Adeeb al-Aama, has said that concerns his country will substantially oversupply the oil market are “without basis”.

Al-Aama said the kingdom is committed to working with its partners and exports in July will be roughly equal to exports in June. He added that exports in August are expected to be about 100,000 barrels a day (b/d) less.

US President Donald Trump had previously urged Riyadh to increase exports to offset reduced exports from Iran and to stop global oil prices from spiking. Official figures show Saudi Arabia exported an average of 6.984 million b/d in May. In June, it exported about 7.2 million b/d according to a Reuters report.

Gulf states plan move to support Bahrain’s economy

Saudi Arabia, Kuwait and the UAE are expected to announce measures to boost Bahrain’s economy, which has been hard hit by the fall in oil prices since mid-2014. A joint statement from the three countries said an integrated programme would soon be launched to support the kingdom’s economic reforms and fiscal stability.

The Bahrain dinar plunged to a 17-year low at the end of June, following the dumping of Bahraini bonds by hedge funds.

In addition to rising public debt, the kingdom is also struggling with a substantial fiscal deficit, which is expected to reach 11 per cent of GDP this year.

No details were provided as to the nature or value of the GCC states’ planned intervention.

National Centre for Privatisation issues draft PPP law

Once finalised, Saudi Arabia’s new private sector participation law could speed up the implementation of billions of dollars of projects, but care must be taken to ensure the legislation does not conflict with other investment regulations in the kingdom.

The key factor is the provision within the proposed law for the government to support planned public-private partnership (PPP) projects by providing loans and guarantees, among many others.

Nevertheless, an important caveat remains, even when the draft law is finalised and implemented. PPPs have performed best in countries without a PPP unit or PPP legislation, but which have effective policies that enable these programmes to work.

This implies that the promulgation of a draft PPP law in Saudi Arabia is just the starting point of a long process that requires it to review and, where necessary, update other existing investment-related regulations to attract foreign businesses.

IMF says slowing Bahrain economy needs direct taxation

The Washington-based IMF has urged Manama to continue with economic reforms, including direct taxation, to avoid stagnation of its non-oil revenue and reduce fiscal deficits over the medium term.

In a statement released after the IMF concluded its Article IV consultation with the kingdom, the fund said public debt has increased to 89 per cent of GDP, with large fiscal and external current deficits persisting. It added that reserves remain low, covering only one-and-a-half months of prospective non-oil imports at the end of 2017.

While growth in the kingdom is expected to continue decelerating, output grew by 3.8 per cent in 2017.

IMF urges Oman’s government to accelerate economic reforms

The Washington-based IMF has encouraged Muscat to accelerate economic reforms in the sultanate to put public finances on a sustainable trajectory.

Oman has posted double-digit fiscal and current account deficits since oil prices dropped in 2014. This has led to large increases in government and external debt and a decline in external buffers. Higher oil prices and spending cuts brought the overall deficit down to below 13 per cent of GDP in 2017.

The IMF says government measures to raise non-hydrocarbon revenue, such as introducing value-added and excise taxes, and continued spending restraint would bring the deficit to about 4 per cent of GDP in the next two years.

Total leaves Iran after failing to secure US sanctions waiver

French energy giant Total has quit its business in Iran after failing to negotiate a waiver deal with the US that would have exempted it from impending sanctions and allowed it to continue business with Tehran.

In early June, Tehran set Total a deadline of 60 days to win a sanctions reprieve from the US, failing which the French company’s majority 50.1 per cent stake in the South Pars project would be awarded to another company, most likely China National Petroleum Company, the second-largest stakeholder in the project.

Russia, meanwhile, is prepared to invest $50bn in Iran’s energy sector, according to Ali Akbar Velayati, a senior adviser to Iran’s supreme leader.

Lebanon fast stats
1-1.5%
GDP growth in 2017 and 2018
3%
IMF’s growth prediction over the medium term
5%
Inflation rate in 2017
IMF says Lebanon needs well‑defined fiscal strategy

Economic growth in Lebanon remains low, with GDP growth estimated to be about 1-1.5 per cent in 2017 and 2018. The IMF cites weak performance in key sectors such as real estate and construction as the reason for the subdued growth.

The IMF expects growth to rise to 3 per cent over the medium term. Inflation spiked to 5 per cent in 2017 as the cost of oil imports rose and the US dollar weakened.

The fund cautioned that vulnerabilities and downside risks remain, stemming from regional political developments and domestic events. It recommends increasing VAT rates, gradually eliminating electricity subsidies and restraining public wages.

Saudi Aramco confirms interest in Sabic stake

Saudi Aramco has confirmed its interest in acquiring a stake in Saudi Basic Industries Corporation (Sabic). Aramco says it is engaged in preliminary discussions with the Public Investment Fund, the majority 70 per cent owner of the petrochemicals producer, about acquiring ‘a strategic interest’.

Saudi Arabia resumes work on Riyadh megaproject

Construction work on the King Abdullah Financial District in Riyadh has resumed. It is understood Saudi Arabia’s Public Investment Fund (PIF), plans to complete the project by October 2020. PIF took over the project from the Public Pension Agency in 2016-17. Construction work is about 70 per cent complete.

Saudi Arabia invites prequalification for grains sector privatisation

Saudi Arabia’s Grains Privatisation Committee and Public Investment Fund have invited firms to prequalify to bid by 26 August for the contract to own and operate four milling companies. HSBC Saudi Arabia is the financial adviser for the proposed transaction, which is a key component of the privatisation of the kingdom’s grains milling sector.

Russia makes shortlist for Saudi nuclear power project

Russian state nuclear company Rosatom has been shortlisted to participate in the tender for Saudi Arabia’s first nuclear power plant, according to local press reports. Rosatom will be invited to participate in the tender by the King Abdullah City for Atomic & Renewable Energy, the body overseeing the programme.

 

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