The impact of oil production cuts and fiscal consolidation programmes were highlighted in August when the Washington-based IMF downgraded its growth forecasts for Saudi Arabia and Bahrain. The regional discomfiture at the curbs on oil output was articulated in late August when Opec revealed it would be reviewing the production caps.

Governments continue to pile on debt to meet budget deficits; Riyadh closed a $3.5bn local currency sukuk on 21 August that was nearly three times oversubscribed. A report by the UK’s PwC released this month says debt issuance in the GCC has surged throughout the second quarter of this year. Egypt is also planning to return to the international debt market in 2018.

IMF downgrades Saudi outlook

The IMF has downgraded its growth forecast for Saudi Arabia to 0.1 per cent in 2017 and 1.1 per cent in 2018, down 0.3 and 0.2 percentage points respectively on its previous forecasts made in April. The downward revisions are contained in the fund’s update to its World Economic Outlook, and are the result of oil production cuts and Riyadh’s fiscal consolidation drive.

The fund’s projection for regional growth is unchanged at 2.6 per cent for 2017 and 3.3 per cent for 2018, although it warns that if recent declines in oil prices are sustained, they could weigh further on the outlook for the region’s oil exporters.

Opec to discuss ending oil production cuts

Kuwait oil minister Essam al-Marzouq said on 21 August that Opec would look whether to “extend or terminate” its oil production caps introduced on 1 January 2017 to reduce the global oil glut and prop up crude prices.

July saw a second month of missed targets for Opec nations, with only 86 per cent of the planned cuts taking place, according to Bloomberg calculations. In June, the figure was 84 per cent. Among non-Opec countries that had signed up for cuts, the figures were even worse. In July, only 73 per cent of the planned cut was implemented. In June, the figure was 81 per cent.

IMF estimates say average oil prices in 2017 will be about $51.9 a barrel, up from $47.8 a barrel in 2016. It is forecasting $52 a barrel in 2018.

Several commodities analysts have slashed their short-term forecasts for oil prices. In July, France’s Societe Generale lowered its 2017 forecast for Brent to $50 a barrel from $55. It also cut its 2018 price from $60 to $50.

Riyadh closes $3.5bn sukuk

Saudi Arabia closed its second local currency sukuk (Islamic bond) on 21 August, raising SR13bn ($3.5bn). Orders exceeded SR38bn, meaning the sukuk was nearly three times oversubscribed.

The sukuk was divided into three tranches with maturities ranging from five to 10 years. The first tranche, of SR2.1bn, matures in 2022; the second tranche, of SR7.7bn, matures in 2024; and the third tranche, of SR3.2bn, matures in 2027. Riyadh’s first domestic sharia-compliant bond closed in late July, raising SR17bn.

IMF calls for further cuts from Manama

The IMF has called for Bahrain to continue cutting spending while also introducing new taxes such as VAT in order to offset the increased economic risks caused by the fall in oil prices.

In its latest Article IV consultation with Bahrain published on 22 August, the IMF calls for Manama to reduce the government wage bill, make further cuts to energy subsidies, and raise non-oil revenue through VAT and other revenue measures. It also called for the privatisation of state industries and utilities.

The IMF report highlights Bahrain’s positive economic and fiscal performance in 2017 following a tough 2016. It predicts that economic growth in Bahrain will slow to about 1.6 per cent in 2018.

Region records strong growth in debt issuance

The appetite for debt issuance in the GCC surged throughout the second quarter of 2017, according to UK-based consultancy PwC.

Saudi Arabia’s $9bn Islamic bond dominated the GCC region’s debt market between January and June. The sukuk, the first to be conducted in US dollar denomination, was structured into a $4.5bn, five-year sukuk tranche at 100 basis points over the mid-swap rate and an equal-sized 10-year tranche at a spread of 140 basis points to the benchmark.

The Omani government issued a $2bn, seven-year sukuk, which was structured at 235 basis points to the benchmark. Saudi Arabia’s Dar al-Arkan Sukuk Company, meanwhile, issued a $500m sukuk that received significant interest; MEED understands the order book was close to SR4bn ($1.05bn).

Moody’s changes outlook on Qatari banks to negative

Moody’s Investors Service has changed the outlook on Qatar’s banking system to negative from stable due to continued funding pressure faced by lenders and weakening conditions. The change underlines the potential weakness in the government’s ability to support its banking sector. It also reflects an expectation of how banks’ creditworthiness will evolve over the next 12 to 18 months, Moody’s says in its Banking System Outlook – Qatar report.

The US-based ratings agency expects Qatar’s GDP growth to slow to 2.4 per cent in 2017 from exceptionally high rates of about 13.3 per cent in 2006-14. Despite this slowdown, its growth remains the highest in the GCC.

Cairo to return to international debt market in 2018 

Cairo is set to return to the international debt market as early as January 2018. Sources tell MEED the Finance Ministry is looking to raise as much as $4bn to fund Egypt’s budget deficit. The government has not yet appointed any banks or advisers to manage the transactions.

In May, Cairo launched a $3bn tap of its existing $4bn triple-tranche eurobond, raising twice as much as targeted in its second aggressive borrowing foray this year.

Rouhani warns US against tearing up nuclear accord

Iran’s President Hassan Rouhani, sworn in for his second term in office on 5 August, has accused the US of working to undermine the nuclear deal Tehran signed with Western powers in 2015. Rouhani warned US President Donald Trump not to commit “political suicide” in his eagerness to tear up the Joint Comprehensive Plan of Action (JCPOA). “We declare publicly that Iran will not initiate withdrawing from the JCPOA, but it would not keep calm against the US actions,” he said at his first public address in his second term as president.

Also in August, Rouhani said Iran’s nuclear programme could be started in hours if Trump imposes further sanctions.

US cuts aid to Egypt

The US has withheld $195m in military aid and cut $96m in other aid for Egypt over human rights concerns. A statement from Egypt’s Foreign Ministry said the move reflected “poor judgment”.

On 22 August, the Washington Post newspaper cited US officials as saying that Secretary of State Rex Tillerson had notified Foreign Minister Sameh Shoukry by telephone of his decision to withhold a portion of the $1.3bn Egypt receives in military aid, and to reallocate to other countries $65.7m in additional military aid and $30m in economic aid.

The US administration has raised concerns over a new law regulating non-governmental organisations in Egypt.

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