Oil exporting sovereigns in the Middle East and North Africa (MENA) will register significantly stronger growth in 2022, according to Fitch Ratings as the OPEC+ taper drives large increases in oil output except in Bahrain and Qatar where oil production will remain stable.
High vaccination rates in the Gulf Cooperation Council (GCC) have driven gradual easing of economic restrictions in 2021, which will underpin non-oil real GDP growth of about 3 percent, it said in a new research note.
Elsewhere in MENA, Fitch said it expects mostly marginal improvements in growth, following partial recoveries from the pandemic in 2020.
“We factor in a gradual recovery in tourism, which directly accounts for 5-10 percent of GDP across MENA’s non-oil economies (with the exception of Israel). Fiscal space is limited across non-GCC countries to help drive stronger growth, following the increase in debt in 2020.”
In 2021, the number of negative outlooks started to decline after the pandemic-related increase in 2020. The number of downgrades also dropped, after spiking in 2020.
Three of the 15 MENA sovereigns that Fitch rates are on negative outlook – Kuwait, Oman, and Tunisia – reflecting the pandemic’s lingering hit to public and external finances and growth, and liquidity and funding uncertainties in Kuwait and Tunisia.
Fitch added that its outlook is supported by reform momentum to varying degrees across the region and more constructive regional political dynamics that have emerged in 2021.
“Nonetheless, the region continues to face significant economic and political challenges and remains vulnerable to a fresh oil price shock. Structural problems, such as weak growth, high youth unemployment and poor governance, continue to pose risks to political stability and fiscal consolidation,” noted Fitch.
It added that Gulf states face reform dilemmas as they seek to achieve long-term fiscal sustainability, while also delivering good economic outcomes for citizens and promoting economic diversification.
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