The Heritage Foundation Index of Economic Freedom for 2019, a broad indicator of economic freedom in 180 countries, shows that the level of economic freedom in 15 Arab countries slightly deteriorated from the 2018 survey. The region's level of economic freedom stood at 58.9% in 2019, down from 59.1% in 2018, and compared to the global average of 60.8% this year. The GCC countries have an average score of 66.5% in 2019, compared to 66.8% in the 2018 index, while non-GCC Arab countries post an average of 53.9% in 2019, unchanged from last year. The index evaluates individual economies on the basis of 12 equally-weighted broad factors of economic freedom. The rankings of nine Arab countries improved and six deteriorated, while the scores of six Arab countries improved, those of six economies regressed and the scores of three countries were unchanged from the 2018 survey. The UAE is the ninth freest economy in the world and is the only Arab country to rank among the top 20 worldwide. Qatar followed in 28th place, then Jordan (53rd) and Bahrain (54th). In contrast, Lebanon (154th), Sudan (166th), Djibouti (169th) and Algeria (171st) are the lowest ranked Arab countries. Two Arab economies came in the "mostly free" category, six countries had economies that were "moderately free", four were "mostly unfree" and three were "repressed" economies. Also, the survey upgraded the economy of Saudi Arabia to the "moderately free" category from the "mostly unfree" segment. Further, the region's level of economic freedom is higher than in Latin America & the Caribbean (58.4%), South Asia (55.5%) and Sub-Saharan Africa (54.3%), while it is lower than in North America (77.3%), Europe & Central Asia (67.4%) and East Asia & Pacific (62.8%).
Source: Heritage Foundation, Byblos Research

Goldman Sachs considered that banks in the Gulf Cooperation Council (GCC) region are among the best positioned in emerging markets to manage higher U.S. interest rates, given that their local monetary policy remains broadly aligned with their U.S. counterpart. It noted that interbank rates in the GCC increased significantly during 2018, with the average interbank rate growing by an average of 55 basis points last year. However, it revised downward its forecast for the number of U.S. interest rate hikes this year from four to two. As such, it anticipated that a slowdown in the pace of increase in global rates would likely limit the expansion of the net interest margins of GCC banks in the short- to medium term. It expected the banks' net interest margins to expand by nine basis points on average in 2019, driven by hikes that already occurred, while it anticipated a contraction in net interest margins in 2020 as the pace of interest rate hikes slows down. In parallel, it noted that lower interest rates could reduce the pressure on GCC economies, given that higher local rates have been driven by the increase in global interest rates. Further, it said that lower interest rates would limit the shift from current and saving accounts (CASA) to time deposits, which could reduce the cost of funding. It added that the expansion of the banks' net interest margins was mainly driven by access to low-cost CASA funding. Further, Goldman Sachs expected loan growth to be muted in GCC countries given the weakness in the consumer and real estate sectors. It also anticipated asset growth to remain subdued in the context of higher interest rates and relatively weak oil prices. 
Source: Goldman Sachs

S&P Global Ratings maintained Nigeria's banking sector in 'Group 10' under its Banking Industry Country Risk Assessment (BICRA), with an economic risk score of '10' and an industry risk score of '9'. The BICRA framework evaluates global banking systems based on economic and industry risks facing the banking sector, with 'Group 10' including the riskiest banking sectors. Other countries in BICRA's 'Group 10' include Belarus, Greece and Ukraine. The agency indicated that Nigeria's economic risk score reflects its "extremely high risks" in economic resilience and credit risk in the economy, as well as its ''high risks'' in economic imbalances. It noted that Nigeria's economy is constrained by its low level of wealth, weak growth, high reliance on the oil and gas sector as a source of foreign currency, weak governance and rule of law, as well as high credit losses in the banking sector. It forecast nominal credit growth at 5% in 2018 and at about 8% to 10% in the 2019-20 period. Further, S&P pointed out that the industry score reflects the country's "extremely high risks" in its institutional framework and in its system-wide funding, and "intermediate risks" in its competitive dynamics. It said that the industry risk assessment is based on the sector's weak regulatory oversight and moderate risk appetite, as well as on the vulnerability of the banks' funding to foreign currency outflows. S&P indicated that the trends for economic risks and industry risks are ''stable''. It expected the banking sector to be resilient during the next 12 months. 
Source: S&P Global Ratings