Goldman Sachs indicated that the recent increase in global oil prices has significantly reduced fiscal risks in Gulf Cooperation Council (GCC) economies and limited their need to issue debt denominated in foreign currency. It noted that GCC governments based their 2018 budgets on oil prices in the $45 p/b to $55 p/b range, which is well below its forecast of $75 p/b in 2018. However, under its oil price assumptions, the bank expected the fiscal deficits of many GCC countries to narrow significantly this year in case oil prices remain at their current level and governments adhere to their 2018 expenditure plans. 

In addition, Goldman Sachs said that Oman's $6.5bn bond issuance, Qatar's $12bn issuance and the UAE's $1bn debt issuance earlier this year would more than cover their fiscal deficits in 2018 in case of an oil price of $75 p/b. As such, it considered that any additional issuance this year would serve to increase the countries' foreign assets, unless they deviate significantly from their 2018 expenditure plans. However, it noted that Saudi Arabia, Bahrain and Kuwait would still need to finance their deficits this year, and would face a trade-off between drawing down from their foreign assets or seeking global markets to finance their 2018 budgeted expenditures. It considered that Saudi Arabia's debt level would rise at a much slower pace with an average oil price of $75 p/b, which would leave room to finance the remaining expenditures from reserves or from domestic debt issuance. Also, it expected that Bahrain would have the largest fiscal deficit regionally in 2018, given its high fiscal oil break-even price. It added that Bahrain's $1bn issuance in 2018 would be just enough to cover its deficit in case of higher oil prices, but would not leave much room for any fiscal slippage. In parallel, it expected Kuwait to post a small fiscal deficit this year despite higher oil revenues, given that the country's deficit largely stems from the mandatory share of revenues that are held at the Future Generations Fund. 
Source: Goldman Sachs

The International Monetary Fund indicated that Algeria continues to face significant challenges as a result of the sharp decrease in global oil prices since 2014. It noted that Algerian authorities are facing wide fiscal and current account deficits, declining foreign currency reserves and a slowdown in economic activity, despite the considerable fiscal consolidation measures implemented in 2017. It projected real GDP growth to accelerate from 1.6% in 2017 to 3% in 2018 on the back of sustained fiscal consolidation, but to decelerate to 2.7% in 2019. Also, it expected non-hydrocarbon sector activity to grow by 3.4% in 2018 and 2.9% in 2019, compared to 2.6% in 2017. The Fund noted that authorities have adopted a medium-term budget framework that includes higher fiscal spending in 2018, along with a resumption of fiscal consolidation over the medium term, the monetization of fiscal deficits, temporary restrictions on imports, as well as structural reforms that aim to diversify the economy. However, it anticipated such a policy mix to weaken Algeria's medium-term growth prospects, weigh on fiscal and external imbalances, increase inflationary pressure, deplete foreign currency reserves and heighten financial stability risks. 

In addition, the IMF forecast the fiscal deficit to slightly widen from 8.8% of GDP in 2017 to 9% of GDP in 2018, but to narrow to 4.8% of GDP in 2019 in case of higher non-hydrocarbon revenues, improved public spending efficiency, and sustained subsidy reforms. Also, it expected the government's debt level to rise from 27% of GDP at the end of 2017 to 34.8% of GDP at end-2018 and 39.9% of GDP at end-2019. In parallel, it projected the current account deficit to narrow from 12.9% of GDP last year to 9.7% of GDP in 2018 in case of higher hydrocarbon production and prices. It anticipated foreign currency reserves to decrease from 19.1 months of imports at the end of 2017 to 16.2 months of import coverage at end-2018 and to 13.5 months of imports at the end of 2019.
Source: International Monetary Fund

Arab stock markets improved by 7.4% and Gulf Cooperation Council equity markets rose by 8.3% in the first five months of 2018, relative to decreases of 1.8% and 2.6%, respectively, in the same period of 2017. In comparison, global equities declined by 0.7%, while emerging market equities regressed by 4.6% in the covered period. Activity on the Tunis Bourse jumped by 21.9% in the first five months of 2018, the Saudi Stock Exchange surged by 12.9%, the Egyptian Exchange rose by 9.3%, the Khartoum Stock Exchange increased by 8.4%, the Abu Dhabi Securities Exchange expanded by 4.7%, the Qatar Stock Exchange grew by 4.2% and the Iraq Stock Exchange improved by 2.3% in the covered period. In contrast, activity on the Dubai Financial Market dropped by 12% in the first five months of 2018, the Muscat Securities Market declined by 9.7%, the Damascus Securities Exchange and the Palestine Exchange decreased by 5.6% each, the Bahrain Bourse regressed by 4.9%, the Beirut Stock Exchange declined by 2.8%, the Amman Stock Exchange retreated by 1.4% and the Casablanca Stock Exchange regressed by 0.4% in the covered period. In parallel, activity on the Tehran Stock Exchange was unchanged in the first five months of 2018. 
Source: Local stock markets, Dow Jones Indices, Byblos Research