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Country Risk Weekly Bulletin 584

May 23, 2019
Country Risk Weekly Bulletin 584
Source: ASDA'A Burson-Marsteller

  • More than half of young Arabs concerned about rise in cost of living
    The ASDA'A Burson-Marsteller 2019 Arab Youth Survey shows that 56% of young Arabs cited a rise in the cost of living as the biggest obstacle facing the Middle East, followed by unemployment (45%), the lack of Arab unity (35%) and slow economic growth (31%). Also, the survey revealed that 65% of young Arabs expressed concerns that their governments are not doing enough to address the current economic situation. Further, the majority of surveyed Arab youth indicated that authorities in their country should be responsible to provide safety (96% of respondents), education (89% of participants) and healthcare services (88% of surveyed youth) to all citizens. In parallel, the survey noted that 78% of Arab youth are concerned about the quality of education in their country, with a share of 84% in the Levant region & Yemen, 81% in North Africa and 70% in the GCC having this concern. It added that 49% of respondents believe that their country's education system does not prepare them for the job market, with a share of 73% of participants in the Levant & Yemen, 53% in North Africa, and 20% in GCC countries sharing this perception. As such, it noted that only 32% of surveyed participants would pursue higher education in their own country, while 53% of youth would like to attend a college or university in western countries. The survey was conducted between January 6 and 29, 2019 on a sample size of 3,300 respondents who are between 18 and 24 years old in 15 Arab countries. 
    Source: ASDA'A Burson-Marsteller
     

  • Government revenues in Iraq to increase by 4% of GDP annually after 2020
    Moody's Investors Service expected the $53bn energy deal, which the Iraqi government plans to sign with Exxon Mobil and PetroChina, to boost economic growth and government finances, as well as to support the country's external position and strengthen foreign currency reserves. It also anticipated the construction phase of the project to boost non-oil growth and employment. It estimated Iraq's fiscal surplus at 6.5% of GDP in 2018 and forecast the fiscal balance to shift to a deficit in 2019 and 2020, and for the public debt level to increase from 51.5% of GDP in 2018 to around 55% of GDP in 2020 amid moderate oil prices. It also projected foreign currency reserves to decline over the next two years from a peak of around $60bn at end-2018. However, the agency expected that, beyond 2020, the completed project will increase the country's oil and natural gas production capacity, boost its export volumes, and add the equivalent of about 4% of GDP annually to government revenues and export receipts. It noted that the deal will raise production at two southern oil fields from around 125,000 barrels per day (b/d) currently to 500,000 b/d, and will generate $400bn in additional government revenues over a 30-year time horizon. It added that the agreement includes building new storage tanks, pumps, pipelines and offshore terminals that will simultaneously increase Iraq's oil export capacity. Further, Moody's cautioned that higher oil production could reduce the urgency of reforms aimed at decreasing vulnerability to lower oil prices, which remains a constraint on Iraq's credit profile.
    Source: Moody's Investors Service
     

  • Further Turkish lira depreciation to dent banks' capital adequacy ratios
    Citi Research indicated that the adverse macroeconomic conditions in Turkey could weigh on the performance of domestic banks in 2019. But it noted that the banking sector has remained resilient in the face of the ongoing weakness of the Turkish lira. Also, it said that private banks have sufficient capital buffers, while state-owned banks are already receiving significant government support. It anticipated the Turkish government to continue to support state-owned banks and to boost their capital adequacy ratios (CARs) through recapitalization schemes, in case of need. Further, Citi indicated that it performed a stress test to assess the impact of currency depreciation on the banks' capital levels. It estimated that the CAR of most banks would remain above the Banking Regulation and Supervision Agency's (BRSA) minimum requirement under a scenario where the lira trades at TRY7.25 against the US dollar. However, it noted that the CAR for private banks would only start to test the BRSA's threshold if the currency further depreciates to TRY8.8 per dollar. Citi pointed out that syndicated debt rollovers reflect sentiment about the health of the Turkish banking sector, given the sector's elevated open net foreign currency position of $209bn. It said that the banks' rollover rates are still high but have started to decline as the banks reduce their foreign currency debt. It added that banks are targeting rollover rates of 60% to 80% currently compared to a rate of 100% in the fourth quarter of 2018. 
    Source: Citi Research
     

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