MENA Sovereign Outlook Negative, Uncertain Recovery Ahead

Shafaq News/ The economic recovery in the Middle East and North Africa (MENA) will be dampened by a weak oil demand outlook and fiscal consolidation efforts after a sharp rise in debt in 2020, Fitch Ratings says.

Most MENA sovereigns will register improving growth and fiscal and external balances in 2021 as economies bounce back from the coronavirus shock, oil prices recover, and stimulus measures are eased. Nevertheless, balance sheets will continue to deteriorate despite efforts to mitigate the impact of the pandemic on financial sustainability, although they remain very strong for higher-rated Gulf Cooperation Council (GCC) sovereigns.

Fitch's report "Fitch Ratings 2021 Outlook: Middle East and North Africa Sovereigns"  showed that Lower-for-longer oil prices and other potential consequences of the pandemic raise questions about the GCC's long-term social and economic models. Reform is becoming a precondition for debt market access and debt sustainability for some lower-rated sovereigns.

Painful fiscal adjustments and the economic dislocation from coronavirus-containment measures risk a social and political backlash in 2021 in the absence of economic opportunities and improved living standards to satisfy still rapidly growing, young and under-employed populations. Meanwhile, entrenched regional conflicts and rivalries are in the background and there may be renewed attempts at resolution under a Biden administration in the US.

Five of the 15 Fitch-rated MENA sovereigns are on a Negative Outlook, after Outlook revisions on Saudi Arabia, Oman, Iraq, Jordan and Tunisia in 2020. Fitch Ratings has downgraded Bahrain, Lebanon, Morocco, Oman and Tunisia during the year. Lebanon has been in default since March 2020.