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Stable outlook for Levant, N Africa sovereigns

DUBAI, January 17, 2018

Outlook for sovereign ratings in the Levant and North Africa region is broadly stable, reflecting the improved global growth dynamics, ongoing structural reforms, and winding-down of regional conflicts, said Moody’s in a new report.

 "The improved global growth dynamics, ongoing structural reforms, and gradual re-opening of trade routes in former conflict areas together with a planned reconstruction drive will underpin GDP growth in 2018.," said Elisa Parisi-Capone, a Moody's vice president -- senior analyst and co-author of the report.

"In addition, a tightening of global financing conditions poses fiscal risks for some countries, and elevated political risk will continue to drive event risk in the region."

Key takeaways:

•    Moody's expects growth in Egypt to accelerate from 4.2 per cent in 2017 to around 5.0 per cent by 2019 and 5.5 per cent by 2021.

•    Moody's also forecasts GDP growth to pick up in Iraq, Jordan and Lebanon in 2018 to 2.9 per cent , 2.5 per cent , 2.8 per cent, respectively.

•    In Tunisia, Moody's forecasts a slight acceleration in growth to 2.8 per cent in 2018 from 2.3 per cent in 2017 based on demand, in particular from France and Italy, and improving investment incentives.

•    However, the growth trajectories of Tunisia, Jordan and Lebanon continue to face significant structural and external headwinds, despite the cyclical growth recovery.

•    In Morocco, the cyclical recovery is expected to moderate, with GDP growth at 3.5 per cent in 2018 from 3.9 per cent in 2017 due to a lower contribution to growth from the agriculture sector.

•    Moody’s expects a gradual reduction in the fiscal deficit for Jordan to 3.4 per cent of GDP in 2018 and to below 3.0 per cent of GDP by 2019 from about 3.7 per cent in 2017.

•    Moody’s notes that Iraq to record a fiscal deficit of 4.7 per cent of GDP in 2018 from 5.0 per cent in 2017 and 14.1 per cent in 2016 on the back of changes in oil revenues, which account for over 90 per cent of total revenues.

•    Morocco is projected to reduce its deficit to 3.0 per cent of GDP in 2018 from 3.5 per cent in 2017, in line with the budget.

•    Interest spending at levels above 40 per cent of Egypt's revenues, together with subsidy and wage spending at similar levels, led to an estimated deficit of 11 per cent of GDP in 2017. However, Moody’s expects a slight consolidation to 10 per cent in 2018 and 8.5 per cent in 2019.

•    In Tunisia, a persistent lack of spending control underpins our 6.5 per cent of GDP fiscal deficit forecast for 2017. For 2018, the wage bill and a rigid spending structure underpin Tunisia's reliance on tax increases to cover a deficit that we project at 5.5 per cent of GDP against the budgeted 4.9 per cent. Taking into account debt amortizations, we expect gross borrowing requirements of 13-15 per cent of GDP over the next three years.

•    Despite the more contained annual funding needs – compared with peers like Lebanon and Egypt at 30 per cent and 40 per cent of GDP, respectively – Moody’s assesses Tunisia's government liquidity risk to be the among the highest in its regional peer group owing to a comparatively narrow domestic funding base. – TradeArabia News Service

Tags: Moody’s | Levant | North Africa | sovereigns |

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