Most industries in MENA region are seeing gradual recovery, but corporates remain cautious and sectors such as tourism and aviation continue to see pressure says a S&P Global Ratings report.
The agency's EM+ series report titled "MENA Sovereigns, Corporates, And Banks Enter A New Chapter As Covid-19 Concerns Linger," was published today on RatingsDirect.
The report selected six countries in the region considering their economic size, market relevance and where it could provide an opinion about sovereign, corporate and bank ratings. Much like the global economy, the six countries in the MENA region (MENA -6) -- Egypt, Morocco, Qatar, Saudi Arabia, Tunisia (no published rating), and the United Arab Emirates (no published rating) -- are still operating in the shadow of the Covid-19 pandemic, it said.
These countries' greater reliance on energy exports and travel and tourism meant last year's regional economic loss closely tracked the world composite, it said.
Regional growth started to rebound in third-quarter 2020, but what seemed to be a sharp recovery path has been thwarted by subsequent virus waves. The pace of rebound is insufficient to bring these economies back to their pre-pandemic GDP trajectories by 2024, the report said.
Hydrocarbon endowments are a key differential between Gulf Cooperation Council (GCC) and North African sovereigns. Weak fiscal positions continue to weigh on North African countries, while GCC sovereign's accumulation of high levels of government assets support both their fiscal and external positions.
Meanwhile, Qatar's sizeable external financing needs reflect the funding profile of its banking sector. Governments have, to a large extent, provided stability; however, political institutions are still developing and decision-making processes lack transparency and remain centralised.
"We see gradual recovery across most industries in the MENA-6, but corporates remain cautious. We expect continued pressures in some corporate sectors, particularly tourism, and aviation, with a gradual recovery in certain real estate segments.
"Stronger oil prices are a key catalyst for the GCC region. Improving price trends are supportive for operating conditions in most segments of the larger oil, gas, and commodities sectors -- including contract renewals in oil field services," the report said.
"Most MENA banks have remained resilient despite the pandemic's economic shock. We expect credit losses to peak across most of the region in 2021 and gradually trend down to historical values over 2022. However, we anticipate that nonperforming assets will linger in some countries due to idiosyncratic factors. These include a sluggish economic recovery due to higher tourism dependance in Egypt and Morocco and intensifying political unrest in Tunisia. GCC banks' performance should improve as higher oil prices support local economies," it added.
The report does not constitute a rating action and information on sovereigns on which it does not publish ratings comes from publicly available sources, said S&P Global Ratings.
Source: Trade Arabia