Economic Risk Ratings for Middle East Countries: Saudi Arabia, Jordan, Egypt, Kuwait
Jordan: risk assessment
Sovereign risk Currency risk Banking sector risk Political risk Economic structure risk Country risk
June 2010 B B B CCC B B
Sovereign risk
Stable. Despite the wide fiscal deficit, the government has not faced problems finding buyers for its debt at the domestic banks, and the economy managed to avoid recession in 2009. However, Jordan’s sovereign risk rating will continue to be undermined by its reliance on foreign grants and its structural deficit.
Currency risk
Stable. The Jordanian dinar will remain pegged to the US dollar. Although the current-account deficit is expected to narrow marginally in 2010, foreign direct investment will be lower than in 2005-08, which may put downward pressure on the currency, especially if the regional political situation also worsens.
Banking sector risk
Stable. The Central Bank of Jordan has tightened regulation of the financial sector in recent years, and Jordan’s banks have been relatively unscathed by the global financial crisis. The government has also extended its pledge to guarantee deposits until end-2010.
Political risk
The looming parliamentary election could cause tensions to rise between the leadership and the Islamist opposition, if the latter chooses to boycott the poll.
Economic structure risk
Jordan has a high level of public debt and relies on inflows of foreign aid and workers’ remittances to finance its fiscal and current-account deficits. It lacks natural resources and depends on imported oil.
SOURCE: Country Risk Service
Egypt: risk assessment
Sovereign risk Currency risk Banking sector risk Political risk Economic structure risk Country risk
June 2010 BB BB BB B B BB
Sovereign risk
Stable. The current account will post surpluses in 2010-11, and growth in the external debt stock will be slow, so Egypt will not have any difficulty meeting its debt-service obligations. The external debt/GDP ratio is low, but the large and growing public domestic debt stock remains a concern.
Currency risk
Stable. The Egyptian pound is unlikely to come under pressure owing to high domestic interest rates (fuelling a carry trade) and comfortable foreign-exchange reserves, which would allow the authorities to defend the currency if needed.
Banking sector risk
Stable. The banking sector is relatively robust and has been largely unaffected by the global credit crisis. The risks of contagion remain small. The regulatory environment is being improved, with a strengthening of the Central Bank of Egypt’s supervisory role.
Political risk
The political scene faces uncertainty as the president, Hosni Mubarak, may not contest the election in 2011. Although a serious opposition candidate may emerge, the regime’s candidate—probably the president’s son Gamal—will win.
Economic structure risk
Egypt’s economy is fairly diversified compared with those of other countries in the region. However, revenue from tourism—the second-largest foreign-currency earner (after oil and gas)—is vulnerable to weakness in European demand.
SOURCE: Country Risk Service
Kuwait: risk assessment
Sovereign risk Currency risk Banking sector risk Political risk Economic structure risk Country risk
April 2010 A BBB BB BB BBB BBB
Sovereign risk
Stable. Given Kuwait’s large fiscal surpluses and low level of public debt, debt servicing will be easily manageable in 2010-11.
Currency risk
Stable. Kuwait has ratified the agreement on a planned single currency with Saudi Arabia, Bahrain and Qatar, but this is unlikely to be implemented in the next five years. In the meantime, Kuwait is expected to retain its existing peg to a US dollar-heavy basket of currencies in the meantime. The currency is well supported by large fiscal and current-account surpluses.
Banking sector risk
Stable. Kuwait’s banking sector faces risks from the fallout of the economic slowdown in the region last year, given its exposure to defaulting companies and high levels of domestic consumer lending. However, the Central Bank of Kuwait has ample resources to ensure that the sector has adequate liquidity.
Political risk
Despite the election, in May 2009, of a new parliament, the political feuding between the executive and the legislature has continued. Relations between the government and parliament are expected to remain fraught in 2010-11.
Economic structure risk
Kuwait’s economy is heavily dependent on the oil sector. However, its large foreign assets and recent fiscal and external surpluses would provide support for its economic position even in the event of a sustained slump in oil prices.
SOURCE: Country Risk Service