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MENA Sovereigns Remains Down by Covid 19

Five of the 14 Middle East and North Africa Sovereigns rated by Fitch Ratings are on Negative Outlook. The five include Jordan, Kuwait, Oman, Saudi Arabia and Tunisia, reflecting the lingering hit to public and external finances and growth as a result of the pandemic and the fall in oil prices last year. This also included the liquidity and funding uncertainties in Kuwait and Tunisia.

Gulf Cooperation Council Sovereigns will experience a narrowing of fiscal GDP in 2021. Our forecasts assume average Brent oil prices of USD58/bbl in 2021 and it is further accompanied by an unwinding of OPEC+. The production cuts beyond the 2.1 million-barrel increase already announced for May-July, although average oil output will still likely end up below 2020 levels.

The fiscal deficits will remain high, particularly in Kuwait and Bahrain. We expect only Abu Dhabi and Qatar to eke out fiscal surpluses. Continual deficits in the Gulf Cooperation Council will lead to continued debt issuance and drawdowns of assets, although sovereign assets remain adequate to finance prolonged deficits in the higher-rated Sovereigns.

High fiscal break-even oil prices illustrate the scale of the public finance reform challenge and mostly remain well above current or forecast oil prices.The continued spread of infections proceeds to hamper external receipts, public finances, employment and GDP growth. Most countries in the region saw a rebound in coronavirus cases in 1Q21, and some, including Oman, Jordan and Kuwait, have re-imposed restrictions on economic activity after easing in late-2020.

Some Middle East and North Africa countries are at the forefront of the global vaccination campaign, in particular Israel, the UAE, Bahrain and Qatar. However, the economic rebound will also depend on ending the pandemic elsewhere, particularly in Europe.

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