It's Not About The Money HSBC Middle East Report

Middle East
ECONOMICS
Macro Middle East Economics Q2 2012
Its not about the money

The worlds oil importers are transferring resources to the oil producers of the Middle East at a record pace but while regional savings are soaring, growth is modest and appetite for reform looks weak against a troubled political backdrop For the regions commodity poor, high energy prices are imposing additional strain on an already difficult economic outlook
By Simon Williams and Elizabeth Martins
Disclosures and Disclaimer This report must be read with the disclosures and analyst certications in the Disclosure appendix, and with the Disclaimer, which forms part of it
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Contents
Summary Its not about the money Middle East & North Africa at a glance Key forecasts GDP Consumption & saving Investment Credit Population & GDP/Capita Inflation Public finances Oil External balance External debt 2 4 15 16 17 18 19 20 21 22 23 24 25 26 Reserves Exchange rates & interest rates Country outlooks
Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar Saudi Arabia Tunisia United Arab Emirates
27 28 29
30 31 32 33 34 35 36 37 38 39 40 41 42 43
Disclosure appendix Disclaimer
46 47
We acknowledge the assistance of Michelle Campbell (HSBC Bank Middle East Ltd) in the production of this report.
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Summary
Higher oil prices will bring record revenues to the MENA region in 2012, adding an estimated USD400bn to the assets of its producers and lifting GDP to USD2.7trn. However, turning a fresh surge in nominal growth into real growth and hence wealth into prosperity will be much harder. The feed-through channels to the real economy are, at best, constrained, and a still troubled political backdrop will also weigh heavily. Current levels of fiscal comfort may also deter the kind of structural reforms that will promote more rapid growth over the long term. Meanwhile, for the non-oil states, the rise in prices adds to an already acutely challenging economic picture.
rarely topped 5%. Indeed, despite all of its advantages, the region has tended to lag not lead its emerging market peers. With spending levels rising at this rate, the risk of a sharp and painful adjustment when oil prices fall is increasing. Labour market inefficiencies and costly subsidy regimes are both in need of reform to increase fiscal flexibility. Yet higher oil prices, particularly in conjunction with the political risks which came to the fore in 2011, are likely to reduce the incentive for governments to make these changes. The non-oil producers in the region will feel the impact of higher energy prices as yet another headwind in an already acutely challenging growth environment. Trade deficits are widening at a time when investment and tourism inflows are not forthcoming, and increased subsidy spending will add to the strains on public finances. Higher oil prices put Gulf states in a position to provide financial aid, but there has been little evidence of this materialising thus far.
Oil prices have risen 20% since our last Middle East Economics Quarterly a rise which will translate, for the regions oil producers, into an additional USD400m a day in revenues. We estimate total export receipts will come in at USD750bn in 2012, taking dollar GDP for the region as a whole to USD2.5trn, and adding over USD400bn to the oil producers already substantial foreign assets. For a region in urgent need of job creation, however, money is not enough. Even increasing volumes of exports though lucrative has a very limited feed-through to the wider economy. Government spending increases will be only at the margins, given already expansionary budgets, and, by definition, the accumulation of surpluses and reserves precludes consumption. The challenge facing the MENA region, then, is to turn this nominal growth into real growth something which has historically proven difficult. We estimate that, by 2013, public spending will have increased fourfold in less than a decade. Yet annual real GDP growth over that period has
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Key forecasts and changes

Key forecasts MENA GCC Algeria Bahrain 4.5 2.2 2.5 3.5 22 26 27 28 6.3 6.6 8.9 5.3 1.0 1.0 2.5 3.0 0.50 0.50 0.50 0.50 0.376 0.376 0.376 0.376 Egypt 5.1 1.8 1.8 3.7 209 237 251 261 -2.1 -1.2 -2.0 -2.6 10.7 11.8 9.5 10.0 8.50 8.50 9.50 9.50 5.70 5.97 6.25 6.60 Iraq 7.3 5.6 4.1 5.8 147 181 209 220 -0.2 10.5 12.2 5.0 6.0 5.0 5.0 5.0 6.00 6.00 6.00 5.50 1170 1165 1150 1135 Jordan Kuwait Lebanon Morocco Oman Pakistan 3.4 2.7 2.3 3.4 23 25 27 30 -5.4 -20.4 -19.8 -16.7 6.1 4.2 4.0 3.0 4.25 4.50 4.50 4.50 0.709 0.709 0.709 0.709 3.3 4.2 3.4 3.9 145 189 224 227 23.2 30.3 32.6 27.6 6.0 3.1 4.9 3.8 2.50 2.50 2.50 2.50 0.281 0.275 0.275 0.275 7.1 1.7 2.3 3.9 39 41 44 47 -21.0 -25.1 -20.9 -15.3 4.5 4.0 3.5 3.5 10.00 10.00 10.00 10.00 1508 1508 1508 1508 3.7 4.8 2.5 3.8 92 94 109 117 -5.4 -5.1 -4.4 -4.0 2.2 3.0 3.0 3.0 3.25 3.25 3.00 3.00 8.33 8.59 7.83 7.79 4.7 4.2 4.6 4.2 60 78 89 91 11.0 13.4 16.9 9.0 4.2 3.3 4.2 4.9 2.00 2.00 2.00 2.00 0.385 0.385 0.385 0.385 4.4 2.1 2.9 2.7 176 207 225 241 -2.0 0.3 -1.2 -0.9 15.5 12.5 13.1 12.6 12.50 13.50 12.00 12.00 84.6 89.7 93.0 95.0 Qatar 14.3 15.2 6.4 5.8 129 181 198 201 16.4 28.8 28.7 22.0 0.4 2.3 3.8 4.7 1.50 0.75 0.75 0.75 3.64 3.64 3.64 3.64 KSA Tunisia 4.1 6.6 4.0 3.9 448 587 652 638 15.7 27.3 26.9 17.5 5.4 5.3 4.8 5.5 0.25 0.25 0.25 0.25 3.75 3.75 3.75 3.75 3.8 -1.8 3.5 4.7 44 41 48 53 -0.4 -4.2 -5.1 -2.9 4.0 4.2 3.3 4.5 4.50 3.50 3.50 3.50 1.44 1.50 1.35 1.34 UAE 5.3 4.1 2.6 3.3 287 332 356 358 5.0 12.8 13.8 9.4 1.8 1.5 1.7 2.2 1.00 1.00 1.00 1.00 3.67 3.67 3.67 3.67
Real GDP growth (%, y-o-y) 2010 5.4 5.6 4.8 2011 5.1 6.6 4.4 2012f 3.6 3.9 4.6 2013f 4.0 4.0 3.5 GDP (USDbn) 2010 1983 1091 162 2011 2424 1393 204 2012f 2680 1545 221 2013f 2739 1543 227 Current Account balance (% GDP) 2010 7.5 13.5 14.3 2011 14.0 23.3 9.6 2012f 14.8 24.0 13.0 2013f 9.7 17.0 8.9 CPI (%, end period) 2010 5.7 3.8 2.7 2011 5.3 3.5 4.0 2012f 5.2 3.9 3.5 2013f 5.5 4.3 4.3 Policy Rate (%) 2010 4.00 2011 4.00 2012f 4.00 2013f 4.00 Exchange Rates (vs. USD, year end) 2010 74.9 2011 76.1 2012f 75.8 2013f 75.7
Fiscal year, ending 30 June Source: MENA Central Banks, Ministries of Finance, HSBC estimates and forecasts
Key changes to regional economic outlook and country growth forecasts ______________Q1 2012 forecasts ______________ _______________Latest forecasts _______________ 2012 2013 2012 2013 MENA aggregates Real GDP growth (%) Current account balance (% GDP) Fiscal balance (% GDP) CPI (%, end period) Key changes to growth Algeria Bahrain Egypt Morocco Oman Pakistan Qatar Saudi Arabia UAE
Source: HSBC estimates and forecasts. Fiscal year, ending 30 June
3.5 10.0 0.4 5.5
4.0 7.7 -0.5 5.9
3.6 14.8 5.5 5.2
4.0 9.7 2.4 5.5
4.2 2.4 2.7 2.5 3.9 2.9 8 2.9 3.1
3.7 3.6 3.9 3.2 4.2 3.1 6.8 3.4 4.2
4.6 2.5 1.8 2.5 4.6 2.9 6.4 4.0 2.6
3.5 3.5 3.7 3.8 4.2 2.7 5.8 3.9 3.3
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Its not about the money

The world's oil importers are transferring resources to the oil
producers of the Middle East at a record pace

but while regional savings are soaring, growth is modest and
appetite for reform looks weak against a troubled political backdrop

For the regions commodity-poor, high energy prices are imposing
additional strain on an already difficult economic outlook
Your pain. Our gain.

In the West, the 20% increase in energy costs over the first months of the year poses a direct and material threat to the still fragile recovery in economic activity. In Asia, the risk that rising oil prices will lead to higher inflation is a cause of growing concern. In much of the Middle East, the situation could hardly be more different. By our estimates, at USD120/b (rather than the USD100/b that prevailed at the end of last year), the value of the regions oil output has risen by an additional USD400m a day. In the zero-sum game of
commodity markets, the worlds oil consumers will have delivered almost USD200bn to Middle East oil exporters in the first quarter of the year alone USD30bn more than they might have but for the recent price gain. Of that total, we estimate that USD145bn accrued to the six states of the GCC, the equivalent of more than USD5,500 for every Gulf national in the space of just three months. Even compared to other oil producers, those in the Middle East stand out as beneficiaries of the recent price spike. Only MENA has additional capacity to bring on line, allowing it to compound the pick-up in price with an increase in output volumes. Average production costs are also just a
...or where wealth is focused.
There's no doubting who the winners of the oil boom are...
Nominal GDP (USDbn) 2000 1500 1000 500 0 2005 Non oil producers* 2012f Oil producers 20000 15000 10000 5000 0
GPD per capita (USD)
2005 Non oil producers*
2012f Oil producers
Source: MENA Central Banks, HSBC estimates. * Excludes Pakistan
Source: MENA Central Banks ,HSBC estimates. * Excludes Pakistan
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fraction of those elsewhere, running at just over USD10/b in MENA compared to USD25/b in Russia or USD35/b in the Americas. At USD125/b in other words, 90% of the income accrues as profit. With production largely state owned, that profit stays onshore rather than being transferred to production partners overseas.
A two and half trillion dollar economy
While the futures curve continues to suggest oil prices will weaken, they are set to do so later and from a higher base - than had previously seemed likely. Factoring this into our forecasts suggests that oil exports will reach some USD750bn this year, an all time high that will easily surpass the heady days of 2008 when oil prices briefly looked set to breach USD150/b. The increase in the value of oil output should drive MENA GDP to more than USD2.7trn this year, roughly the same economic scale as France. We estimate that in the GCC, home to just 10% of the regions population but 77% of the oil exports, dollar GDP will exceed USD1.5trn. If reached, the figure will mean that, in dollar terms, GCC GDP will have trebled in less than a decade on the back of high oil earnings and risen by two-thirds since 2009.
In absolute terms, Saudi Arabia stands out, with dollar GDP likely to reach USD650bn in 2012, an increase of more than USD250bn since 2009. Qatars remains the most striking dynamic, however, with gains in oil earnings coupled with a sharp rise in gas production suggesting that nominal GDP should have doubled between 2009 and 2012. The gains will keep Qatari GDP per capita at around USD100,000 or over USD350,000 per head when expatriates are excluded.
Spend more; earn even more; save more still
Because the oil industry across the region is owned by the state and is the dominant source of budget funding, the run-up in oil prices continues to strengthen public finances. We expect the GCC states to run an aggregate budget surplus of around 12% of GDP in 2012, allowing the regions governments to continue to reduce what are already modest levels of public debt. In both Saudi Arabia and Oman, for example, debt stocks of under 10% of GDP will continue to trend downward as surpluses accrue. The windfall will further enhance the regional oil producers robust external account position. We expect every GCC state to record a current account surplus this year, with the overall aggregate balance equating to just under 25% of GDP. This should leave MENAs oil producers with over USD400bn to add to their foreign asset stock in 2012 alone. Although likely not the largest holder of foreign assets, Saudi Arabia is the most transparent. SAMA accounts show that since the onset of the Arab Spring, the kingdom has added well over USD100bn to its reserves that reached over USD560bn in February 2012. We expect the kingdoms foreign reserve stock to breach USD600bn this year.
Oil prices have driven a 3-fold rise in GCC GDP in a decade
1500 1000 500 0 2002 2004 2006 2008 2010 2012
125 100 75 50 25 0
GCC GDP (USD, bn)
Brent (av g USD/b, RHS)
Source: GCC central banks, Bloomberg, HSBC estimates
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Estimated foreign savings of global SWFs and central banks Fund Name People's Bank of China Bank of Japan Abu Dhabi Investment Authority Norwegian Government Pension Fund SAFE Investment Company SAMA Foreign Holdings Central Bank of Russia China Investment Corporation Central Bank of Taiwan Central Bank of Brazil Swiss National Bank Bank of Korea Kuwait Investment Authority Central Bank of India HKMA Deutsche Bundesbank Government of Singapore Investment Corporation (GIC) Bank of Algeria Bank of Thailand Bank of Italy Assets (USDbn) 3,181 1,295 627 611 568 556 498 440 357 357 340 311 296 296 293 257 248 186 176 173 Assets (% GDP) 46 22 189 127 8 95 26 6 71 14 51 31 157 16 119 7 93 91 52 8
that the spill-over from gains in oil production into the rest of the domestic economy is very limited. High oil prices are also not, by themselves, sufficient. By definition, the large and growing fiscal and current account surpluses we expect the major oil producers to accrue this year and next represent increases in savings, not gains in consumption, investment or domestic demand. To make their impact felt directly, the oil earnings have to enter the domestic economy, most obviously by being spent by the state. The data show a strong tie between gains in oil earnings and the spending plans of the major oil producers which have been firmly expansionary over the past decade. We strongly expect public spending to show further overall gains in 2012 and 2013 and be a prime driver of economic growth in the GCC states. We also expect the oil-funded build up of foreign assets to enhance their capacity to fund spending plans over the longer term and help them guard against external shocks. However, the feed through from oil earnings to spending is not direct or immediate. Even in 2011, when there was a strong political imperative to boost spending quickly to offset political pressures, it was current spending that governments were able to lift quickly with gains in capital spending taking much longer to deliver. As such, the channelling of oil revenues through
Source: Sovereign Wealth Fund Institute (Updated March 12), central bank sources
While this falls far short of the USD3trn managed by the central bank of China, the gap narrows when the USD1.5trn conservatively estimated to be managed by other MENA banks and sovereign wealth funds are added in. The assets also far exceed those held by China as a percentage of GDP and on a per capita basis, underscoring just how robust their asset base is on a relative basis. Indeed, by year-end we expect Saudi Arabia to hold reserves equivalent to three years of import spending. Those reserves would be sufficient to fund public spending for a full two years.
More than enough money just isnt enough

While accumulating wealth in an environment of rising energy prices is straight forward, transforming the surge in nominal income into real growth is far more troublesome. For one thing, the oil industry itself doesnt contribute much to growth. Increases in oil output lift industrial production but the capital intensive nature of oil production (just 0.24% of Saudi nationals work for Saudi Aramco) and its reliance on imports means
Saudis overseas holdings have soared
550 450 350 250 May-10

Source: SAMA
SAMA foreign assets (USDbn)
Aug-10
Foreign Currencies & Gold Deposits in banks abroad Inv estment in foreign securities
Nov-10
Feb-11
May-11
Aug-11
Nov-11
Feb-12
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the government effectively places a limit on the capacity of the domestic economies to absorb rising energy earnings. Put another way, the level of public spending the GCC region will deliver in the near term with oil at USD120/b is unlikely to be significantly greater than the sum delivered with oil at USD100/b.
Blocked channels in the Gulf
deposit within the domestic banking system. Although there has been some change at the margins most markedly in Qatar and Oman the increases in liquidity pale when set against the rise in oil receipts. In Saudi Arabia and the UAE, there is even less evidence of feed through, with governments continuing to place their surpluses overseas under the management of the powerful sovereign wealth funds. Algeria, the oil producer with the highest levels of foreign reserve import cover, also has the slowest rate of private sector credit creation as a consequence of the state preference for placing funds offshore. Moreover, while the GCC states are feeling the benefit of heightened political risk in increased oil receipts, the same dynamic is also weighing on private sector sentiment. Onshore, confidence is more robust, but among overseas investors the level of uncertainty is much higher with concerns over possible conflict between Iran and the West still elevated. Against a backdrop of broad European deleveraging, this has weighed on appetite for regional risk, even in the GCC. It also helps explain why, though the local-dominated regional equity markets joined the global rally, the more heavily foreign-owned credit market has lagged its global peers.
Aside from being spent, there are other means by which high oil earnings might make their impact felt on domestic demand. High oil prices may encourage government-related companies to press ahead with expansion plans, for example, with the increased wealth of the sovereigns that stand behind them making it easier and cheaper for the state firms to borrow from overseas. The placement of government surpluses on deposit with local banks could also help keep interest rates low and create a pool of liquidity on which the private as well as public sectors can draw. The close correlation between high oil prices and the performance of local-dominated regional stock markets also suggests that there is a powerful causative link between private sector confidence and oil price movements. However, the ability of oil revenues to feed through these channels again appears constrained. For one thing, governments in much of the region remain reluctant to place their surpluses on
Oil revenues made their impact felt on Qatari banks
...but not in the banking system of the UAE
80 60 40 20 0 -20
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
150 100 50 0
30 20 10 0 -10 -20 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
150 100 50 0
Qatar pub. sect. deposits (% chng, y -o-y ) Oil price (USD/b, RHS)
Source: QCB, Bloomberg
UAE gov t. deposits (% chng, y -o-y ) Oil price (USD/b, RHS)

Source: CBUAE , Bloomberg
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High oil prices arent benefiting all producers equally
75 70 65 60 55 50 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12
130 110 90 70 50
that will mean public spending will have increased four-fold in less than a decade, and by more than 40% since 2010. The sum is one of the biggest and certainly one of the most sustained fiscal stimuli on record. The real growth delivered by this massive increase in fiscal outlays, however, is muted, running at around 5%, with domestic demand lagging even this modest pace of increase. In Saudi Arabia, the economy that has delivered the largest increase in spending in absolute terms over the past decade, real growth has averaged less than 4% a year, running above 5% for two consecutive years on only one occasion since 2004. The performance helps explain why, despite the oil-driven increase in the scale of the economy, unemployment has stayed high, with the last International Labour Organisation report putting youth unemployment at 30% close to the rate of youth joblessness in the stalled economies of peripheral Europe.
UAE PMI
Saudi PMI
Oil (USD/b, RHS)
Source: Markit Economics, HSBC, Bloomberg
Money cant buy me love

Indeed, while higher oil prices have led us to revise our forecasts for nominal growth and savings, our projections for real growth are largely unchanged. Adjustments to our forecasts for domestic, non-oil private sector growth have been more limited still and we continue to expect even the major oil producers to lag the rate of expansion recorded by more dynamic emerging market oil importer nations. The trend is not new and the data continues to highlight the shortcomings of the regions oilbased, public sector-led economic model. We estimate that GCC central government spending will run at close to USD500bn by 2013 a figure
High oil prices hold back change

The structural obstacles to more rapid, broadbased economic growth are widely recognised. With oil prices high, however, the likelihood of
High public spending doesnt always bring rapid growth (EM growth v growth in Saudi Arabia 2004-2012)
250 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012f
9 8 7 6 5 4 3 2 1 0
Public spending (USDbn, LHS)

Source: SAMA, HSBC estimates and forecasts
Real GDP grow th (%)
EM grow th (av g, % chng)
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Boom-time subsidies mean soaring energy demand
at a heavy fiscal cost
2800 2400 2000 1600 1200 2000

Source: IEA
Oil cons um pti on ('000 bpd)
15% 10% 5% 0% I raq KSA Kuwait UAE Algeria Libya Qata r
Brazil
reform being accelerated seems to diminish, particularly where the change would entail shortterm social costs. The region continues to advocate boosting the role of nationals in the private sector, for example, as a means to address unemployment. However, strong fiscal revenues allow the government to increase public sector employment and boost public sector wages for nationals. Although effective in curbing unemployment in the near term, such measures risk discouraging nationals from taking private sector jobs or acquiring skills that would meet the demands of the private sector. The inefficiencies and costs of subsidy regimes in place across much of MENA are also widely understood. In Saudi Arabia, for example, the provision of low cost power and water has contributed to compound average annual demand growth of over 6%. Over the past decade, this has turned the kingdom into the sixth largest consumer of oil in the world, with demand outstripping that of economies such as Germany which has a population three times that of the kingdom and GDP six times as big. The trend is progressively eroding the volume of crude available for export (Saudi now consumes almost a third of the oil it produces) and imposes a rising financial cost. In an environment where
2002
200 4
Germ any
2006
Sau di
Source: IEA
2008
2010
Subs idy sp end (2011, % GDP)
high revenues create no immediate pressure to remedy the system, however, it appears unlikely that prices will be raised to manage down demand.
Peak oil spending

Not only has public spending proved to be a relatively ineffective catalyst for broader economic growth, it is also likely to be one of finite duration. For the past decade, spending has provided a strong impetus for growth because outlays have been drawn higher by oil prices which have risen y-o-y in every year bar one. If oil prices flatten, however, that impetus will dissipate as spending catches up with revenue. The dynamic is underscored by the pick-up in the breakeven oil price the price necessary to generate the level of revenue required to fund public spending. In Saudi Arabia, the breakeven price has risen from USD30/b as recently as 2005 to USD95/b in 2012 by our calculations. With oil at USD125/b, the level of revenue appears to leave plenty of scope for further increases in spending. Should oil fall back to USD100/b in 2013, however, then even with oil being sold at more than 10 times its cost of production, the kingdom would no longer be generating budget surpluses.
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Saudi Arabia all but gives away its petrol
2.5 2.0 1.5 1.0 0.5 0.0 Germany

Source: IEA
producers have accumulated savings and reserves of a scale that would allow them to weather even the sharpest and most unexpected drops in oil prices without finding their currencies or budget positions under strain. Nevertheless, we strongly suspect that a drop in oil prices to even USD80/b would prompt the regions oil producers to rethink elements of their spending programme rather than seek to finance an expansionary programme through debt or a draw-down in capital. Given that a twelve month run of oil prices at USD60/b would leave Saudi Arabia with a budget shortfall of more than 15% of GDP, it seems highly likely that such a sharp revenue drop would push the kingdom and other oil states toward austerity. While the spending of all of the oil producers would likely react to a drop in revenues, some enjoy greater room for manoeuvre than others. Those GCC states with small populations and substantial oil resources would inevitably fare best. This group would be led by Qatar but we would also expect to see Kuwait and Abu Dhabi weather a downgrade of their oil sectors comparatively well. For Saudi Arabia, Oman, Algeria and Bahrain, however, a structural downshift in oil prices would prove more difficult to tolerate.
UAE Saudi
This need not prompt Saudi Arabia and other oil producers to mark down their spending plans given the strength of their balance sheets and the political imperative to maintain growth. However, it would start to weigh on marginal spending choices, creating downward pressures on spending growth that would increase with each passing year. Indeed, long-term forecasts generated by Saudi-based Jadwa suggest that the kingdom will run structural fiscal deficits from 2015 onward, and that to meet likely spending objectives it would need an oil price of more than USD300/b to balance its budget by 2030. While this suggests that the growth impetus will moderate progressively in the years ahead, the slowdown will be more acute should oil prices drop in the near term. All of the regions oil
Spending has adjusted to rising revenues...
UK
Gasoline prices (USD per lit re)
Switzerland
S. Korea
US
with the impact of any price decline increasingly marked
100 80 60 40 20 0
2004 2005 2006 2007 2008 2009 2010 2011 2012
10 -10 -30 -50 -70 $120 $100 $80 $60 $40 $20
300 200 100 0
Budget Balance (% GDP) Saudi Arabia Breakev en oil price (USD per barrel)
Source: HSBC estimates
Budget Rev enue (USDbn, RHS)

Source: HSBC estimates for 2012 (NB model adjusts both GDP and fiscal revenues for oil price trend)
10
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Saudi and Qatar lead the way

Over the near term, however, Saudi Arabia, along with Qatar remain the stand-out stories (see Whos at Risk in 2012, January 16, 2012). In both cases, gains in government spending that were in train well before the recent pick-up in oil earnings are driving domestic demand, supported by a pick-up in the pace of credit creation. Of the rest, Omans near-term outlook is probably the most compelling, with data showing that the recent pick-up in government spending is both significant and comfortably funded by revenues, despite the sultanates modest levels of oil output. Lending has also gained speed. Kuwaits more substantial oil resources have supported strong gains in current spending which appear to be feeding through into domestic demand. We remain unconvinced by the quality of policymaking in Kuwait, however, or by the government's capacity to deliver on pledges to increase the pace of capital spending. Similar impediments weigh on Algeria ,which has one of the largest stocks of foreign assets in the world, but faces stagnant domestic demand. Even in the UAE, which has one of the highest levels of oil output per national, all of the available indicators suggest that the pace of domestic demand growth remains soft, including
in Abu Dhabi. The outlook is weaker still for Bahrain where pledges to increase public spending appear to be proving difficult to deliver and still-pronounced political tensions are weighing on private sector investment and activity.
No relief for the commodity poor

For the regions non-oil producers, , the dynamic is far more challenging with rising energy costs adding to chronic external account imbalances. In Morocco, for example, even the modest run-up in oil prices in 2011 contributed to a widening of the current account shortfall and a draw-down in reserves. Although data are not yet available, it is highly likely that the run-up in energy prices over the first quarter of the year will have put their external accounts under greater pressure still, with little relief likely in the near term. As the regions non-oil producers also regulate the cost of energy goods, higher oil prices are also undermining their fiscal position too. In other circumstances policymakers might have felt able to pass some of the burden of higher imported fuel costs on to consumers. However, clear memories of the economic distress that triggered unrest across much of MENA in 2011 gives the non-oil producers very little room for manoeuvre. Indeed Jordan, one of the few countries to have
The winners and losers of oil price gains are easy to pick
...which ever way you cut it
75 50 25 0 Spending -25 Bahrain Kuwait Saudi Iraq Oman Algeria Qatar UAE Tunisia Egypt Pakistan Morocco Lebanon Jordan Earnings
40 20 0 -20 -40 Kuwait Qatar UAE Bahrain Iraq Oman Saudi Algeria Pakistan Egypt Jordan Morocco Tunisia Spending Earnings
Oil ex port earnings/ import spending (% GDP)

Source: Regional central banks, HSBC estimates
Oil ex port earnings/ import spending per capita (USD '000)

Source: Regional central banks, HSBC estimates
11
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progressively removed subsidies on many energy goods, elected to reintroduce price controls in 2011 and has held them in place since. Although discussion of Jordan and Morocco joining the monarchies of the GCC has lapsed, there has been some support from the oil-rich Gulf for less fortunate states elsewhere in MENA. This has been led by Saudi Arabia which increased its direct aid to Jordan significantly in 2011 and is likely to provide additional funding this year. However, while this support is imperative, it is by no means universal or reliable. The schedule and scale of aid flows to Jordan from Gulf or Western sources is not clear, while Morocco, Lebanon and Pakistan do not appear to have gained access to any supportive fund flows. Moreover, some of the automatic stabilisers that usually benefit the non-oil producers during years of high energy prices seem weaker this year. In particular, subdued economic growth and elevated political risk concerns seem to be weighing on demand for expatriate staff in the Gulf, dampening remittance flows to the non-oil states. Direct investment from the Gulf usually strong during high oil price years also appears subdued. Even where aid has been disbursed, it is unlikely to be sufficient to maintain, let alone step up, the fiscal stimulus states such as Jordan introduced last year when regional unrest was at its peak.
Oil is adding to Jordan's chronic trade account shortfall
This will compound the other serious impediments to growth they face this year (see Whos at risk in 2012, 16 January 2012) including their heavy reliance on European demand for goods, services and labour exports. The consequences of these constraints is likely to be exacerbated by heightened political risk concerns that are weighing on access to international capital as well as undermining tourism demand. We see little prospect of meaningful relief from these pressures over the remainder of this year.
Egypt: In need of friends indeed

It is the post-revolutionary states, however, that face the most serious challenges. In Libya the interim authorities directly benefit from rising oil prices, particularly given the recovery in oil output. The weakness of Libyas political institutions, however, makes it difficult for the authorities to effectively channel rising revenues into the domestic economy. The wealth at stake also risks exacerbating pre-existing tribal divides between oil-rich and oil-poor regions of Libya that were suppressed under the rule of the old regime, but now have scope to resurface. For the non-oil producers, however, the stakes appear higher still. Egypts political transition has made meaningful progress over the past quarter following the completion of parliamentary elections, establishment of the new constitutional assembly and setting of the date for the presidential election. This should lay the groundwork for the establishment of Egypts first permanent postrevolutionary government and the resumption of policymaking in the second half of the year. Politically, however, a great deal remains to be done (see End of the Beginning, 6 March 2012). The relative authority of Egypts emergent democratic and military institutions remains ambiguous and we are concerned that this could lead to chronic discord as well as periods of acute
0 -2 -4 -6 -8 -10 Trade Balance (JODbn)

Source: CBJ, HSBC forecasts
2013f
0 -10 -20 -30 -40 -50
2001
2003
2005
2007
2009
% of GDP (RHS)
12
2011
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Egypt's external account position is weak...
..and funding the fiscal deficit has been a heavy burden for banks
50 40 30 20 10 0 Oct-10
Source: CBE
6.2 6.0 5.8 5.6 5.4 Dec-10 Feb -11 Apr-11 J un-11 Aug-11 Oct-11 Dec-11 Feb -12
40 30 20 10 0 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
Egy pt deposits (% chng y -o-y )

Egy pt res erv es (USDbn) USD/EGP (RHS )
Source: CBE
Egy pt claims on gov . (% chng, y -o-y )
stress until resolved. In addition, we are anxious at the pronounced populist pressures the new leaders are set to face, particularly given both their inexperience and the likely volatility of newly elected houses of parliament. Our real concerns, however, are rooted in the economy, which contracted for the first time in a generation in calendar 2011, held back by very weak capital and consumption spending, collapsing FDI inflows and a stalled tourism sector. The choke points for this weak economic performance continue to be Egypts fiscal and external account deficits. Although the currency has remained stable, Egypt has used more than 60% of its pre-revolution reserves to fund the external account shortfall,
with assets now standing at just 3 months of import cover. We expect the current account to remain in deficit in 2012 with reserves continuing to take the strain. This will likely ensure that market concerns of a sharp drop in the value of the currency continue to build, alongside anxiety that the authorities may introduce additional currency controls to stem pressure on the pound. The pressure on public finances also remains acute. We estimate that Egypt could run budget shortfalls of as much as 11% of GDP over FY2012 and FY-2013, 3.5ppt above the average of the previous five years. Egypts commercial banks were able to carry a funding burden of this scale in 2011 but we are not persuaded that they will be able to do so again in 2012 given the weak growth in their own funding base. This raises the prospect of, at best, renewed upward pressure on rates and the exclusion of the private sector from the credit market or, at worst, deficit monetisation.
Show me the money
A lost year Egypt has stalled since the revolution
6 4 2 0 -2 -4 -6 Q4 9
Source: CBE
To manage the adjustment of its currency and public finances in an orderly fashion, it is essential that Egypt (and Tunisia, which faces similar, if less pronounced, twin deficits) gain access to concessional funding from overseas. It still seems likely to us that this will occur, and we continue to look for a USD3.2bn IMF
Q1 10
Real GDP grow th (% chng, y -o-y )
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Q3 11
Q4 11
13
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agreement to be delivered to Egypt in the months ahead. However, the disbursement of funds is contingent on broad-based domestic political support which is still far from assured. To be meaningful, the disbursement of IMF monies also needs to be backed up by additional fund flows from other multilateral agencies and bilateral donors. However, while some USD1520bn was pledged from such sources in the immediate aftermath of the revolution, little has so far flowed and we have scant evidence that negotiations are ongoing. Should these funds not flow, the risk of a disorderly currency revaluation and a painful readjustment of public finances will rise sharply.
High oil earnings may further dim an appetite for economic reform that had already been muted by recent social unrest and political turmoil. Without such reform, growth rates will continue to be capped by increases in public spending which will lose momentum when oil prices peak. As spending adjusts to oil revenue strength, the vulnerability of the regions smaller oil producers to sustained price weakness increases. The regions non-oil producers not only face the same headwinds as other oil consuming nations as prices rise, but must also deal with the impact of heightened political risk concerns on investment and service sector exports. For the post-revolutionary North African states, rising energy costs are another complication to an already fraught economic outlook. Flows from the oil-rich states are essential if the non-commodity producers are to manage the challenges they face in an orderly manner. So far, however, financial support has been very limited.
Conclusions:
Triggered by concerns over Middle East unrest, the recent surge in oil prices has delivered the oil-rich states of the region a USD30bn windfall over the past quarter and set them up to generate record oil receipts this year. The high prices are driving an increase in savings which will enhance the capacity of regional oil exporters to withstand external shocks and sustain spending over the longer term. However, the surge in revenues is unlikely to have a material impact on nearterm investment or consumption, particularly against a backdrop of increased political risk.
14
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Middle East & North Africa at a glance
Table Notes Non - oil producers = Egypt, Jordan, Lebanon, Morocco, Pakistan, Tunisia GCC = Bahrain, Kuwait, Oman, Qatar, Saudi Arabia (KSA), UAE MENA = Algeria, Bahrain, Egypt, Jordan, Iraq, Kuwait, Lebanon, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Tunisia, UAE *All regional groupings are weighted by USD nominal GDP NB: e = estimates, f = forecasts Egypt fiscal 2011/2012 = Calendar 2012. Fiscal year ends 30 June Pakistan fiscal 2011/12= Calendar 2012. Fiscal year ends 30 June
15
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Key forecasts
Key forecasts MENA GCC Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar KSA Tunisia UAE Real GDP growth (%, y-o-y) 2010 5.4 5.6 4.8 2011 5.1 6.6 4.4 2012f 3.6 3.9 4.6 2013f 4.0 4.0 3.5 GDP (USDbn) 2010 1983 1091 162 2011 2424 1393 204 2012f 2680 1545 221 2013f 2739 1543 227 Current Account balance (% GDP) 2010 7.5 13.5 14.3 2011 14.0 23.3 9.6 2012f 14.8 24.0 13.0 2013f 9.7 17.0 8.9 CPI (%, end period) 2010 5.7 3.8 2.7 2011 5.3 3.5 4.0 2012f 5.2 3.9 3.5 2013f 5.5 4.3 4.3 Policy Rate (%) 2010 4.00 2011 4.00 2012f 4.00 2013f 4.00 Exchange Rates (vs. USD, year end) 2010 74.9 2011 76.1 2012f 75.8 2013f 75.7
4.5 2.2 2.5 3.5 22 26 27 28 6.3 6.6 8.9 5.3 1.0 1.0 2.5 3.0 0.50 0.50 0.50 0.50 0.376 0.376 0.376 0.376
5.1 1.8 1.8 3.7 209 237 251 261 -2.1 -1.2 -2.0 -2.6 10.7 11.8 9.5 10.0 8.50 8.50 9.50 9.50 5.70 5.97 6.25 6.60
7.3 5.6 4.1 5.8 147 181 209 220 -0.2 10.5 12.2 5.0 6.0 5.0 5.0 5.0 6.00 6.00 6.00 5.50 1170 1165 1150 1135
3.4 2.7 2.3 3.4 23 25 27 30 -5.4 -20.4 -19.8 -16.7 6.1 4.2 4.0 3.0 4.25 4.50 4.50 4.50 0.709 0.709 0.709 0.709
3.3 4.2 3.4 3.9 145 189 224 227 23.2 30.3 32.6 27.6 6.0 3.1 4.9 3.8 2.50 2.50 2.50 2.50 0.281 0.275 0.275 0.275
7.1 1.7 2.3 3.9 39 41 44 47 -21.0 -25.1 -20.9 -15.3 4.5 4.0 3.5 3.5 10.00 10.00 10.00 10.00 1508 1508 1508 1508
3.7 4.8 2.5 3.8 92 94 109 117 -5.4 -5.1 -4.4 -4.0 2.2 3.0 3.0 3.0 3.25 3.25 3.00 3.00 8.33 8.59 7.83 7.79
4.7 4.2 4.6 4.2 60 78 89 91 11.0 13.4 16.9 9.0 4.2 3.3 4.2 4.9 2.00 2.00 2.00 2.00 0.385 0.385 0.385 0.385
4.4 2.1 2.9 2.7 176 207 225 241 -2.0 0.3 -1.2 -0.9 15.5 12.5 13.1 12.6 12.50 13.50 12.00 12.00 84.6 89.7 93.0 95.0
14.3 15.2 6.4 5.8 129 181 198 201 16.4 28.8 28.7 22.0 0.4 2.3 3.8 4.7 1.50 0.75 0.75 0.75 3.64 3.64 3.64 3.64
4.1 6.6 4.0 3.9 448 587 652 638 15.7 27.3 26.9 17.5 5.4 5.3 4.8 5.5 0.25 0.25 0.25 0.25 3.75 3.75 3.75 3.75
3.8 -1.8 3.5 4.7 44 41 48 53 -0.4 -4.2 -5.1 -2.9 4.0 4.2 3.3 4.5 4.50 3.50 3.50 3.50 1.44 1.50 1.35 1.34
5.3 4.1 2.6 3.3 287 332 356 358 5.0 12.8 13.8 9.4 1.8 1.5 1.7 2.2 1.00 1.00 1.00 1.00 3.67 3.67 3.67 3.67
Fiscal year, ending 30 June Source: MENA Central Banks, Ministries of Finance, HSBC estimates and forecasts
GDP (USDbn, 2011)
CPI (% chng, y-o-y)
600 500 400 300 200 100 0 KSA

16
12 F'cast 10 8 MENA av erage 6 4 2 0 1999 2001 2003 2005 2007 2009 2011 2013f GCC av erage
Source: MENA Central Banks, Ministries of Finance, HSBC estimates
UAE
Egypt
Algeria Pakistan
Kuwait
Iraq Qatar
Morocco
Oman
Lebanon Tunisia
Jordan
Bahrain
Source: MENA Central Banks, Ministries of Finance, HSBC estimates and forecasts
abc
GDP
Real GDP %, y-o-y 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar Saudi Arabia Tunisia UAE Non oil producers North Africa GCC MENA
5.1 5.7 4.1 54.2 8.7 10.2 5.2 5.1 0.5 7.4 20.8 5.3 6.1 9.6 5.8 4.9 7.8 9.3
5.1 7.9 4.5 4.4 7.6 10.6 4.1 2.2 12.1 7.7 6.1 5.6 3.9 4.9 5.2 4.2 6.4 5.8
2.8 6.7 6.8 10.2 8.0 5.2 0.9 7.8 14.7 6.2 9.6 3.2 5.5 9.9 6.4 5.5 6.4 6.3
3.8 8.4 7.1 1.4 7.2 4.4 8.1 3.2 -0.3 5.7 11.5 2.0 6.3 3.2 5.9 5.1 3.4 4.0
3.6 6.3 7.2 6.6 6.6 4.4 9.3 6.1 14.0 2.0 15.2 4.2 4.5 3.3 5.2 5.4 5.7 5.4
2.7 3.1 4.7 9.3 2.1 -1.2 8.9 4.8 4.3 3.2 10.1 0.1 3.1 -1.6 4.3 4.0 0.8 2.6
4.8 4.5 5.1 7.3 3.4 3.3 7.1 3.7 4.7 4.4 14.3 4.1 3.8 5.3 4.6 4.7 5.6 5.4
4.4 2.2 1.8 5.6 2.7 4.2 1.7 4.8 4.2 2.1 15.2 6.6 -1.8 4.1 2.1 3.0 6.6 5.1
4.6 2.5 1.8 4.1 2.3 3.4 2.3 2.5 4.6 2.9 6.4 4.0 3.5 2.6 2.4 3.1 3.9 3.6
3.5 3.5 3.7 5.8 3.4 3.9 3.9 3.8 4.2 2.7 5.8 3.9 4.7 3.3 3.5 3.7 4.0 4.0
Source: MENA Central banks, Ministries of Finance, HSBC estimates and forecasts. Fiscal year, ending 30 June
Real GDP (% chng, y-o-y)
Real GDP (weighted, % chng y-o-y)
15 10 5 0 -5 Algeria
GDP USDbn 2004 2005 2006 2007
10 8 6 4 MENA av erage 2 0 1999 2001 2003 2005 2007 2009 2011

Bahrain Egypt Iraq Jordan Kuwait 2011 Lebanon Morocco Oman Pakistan Qatar Saudi Tunisia UAE
GCC av erage
F'cast
2013f
2012f
2013f
Source: MENA Central banks, Ministries of Finance, HSBC estimates and forecasts
Source: MENA Central Banks, Ministries of finance, HSBC estimates and forecasts
2008
2009
2010
2011
2012f
2013f
Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar Saudi Arabia Tunisia UAE Non oil producers North Africa GCC MENA
85 11 79 48 11 59 21 61 25 91 32 250 32 148 296 258 525 955
103 13 89 50 13 81 22 57 31 103 42 316 31 181 314 280 664 1131
117 16 107 69 13 102 22 68 37 120 57 357 35 222 366 328 790 1342
135 18 130 92 15 115 25 80 42 136 71 385 41 258 427 386 890 1544
172 22 163 133 20 148 30 85 61 158 115 477 42 315 498 461 1137 1940
138 20 188 119 21 125 35 93 47 161 98 377 45 270 543 464 937 1738
162 22 209 147 23 145 39 92 60 176 129 448 44 287 583 506 1091 1983
204 26 237 181 25 189 41 94 78 207 181 587 41 332 646 577 1393 2424
221 27 251 209 27 224 44 109 89 225 198 652 48 356 705 630 1545 2680
227 28 261 220 30 227 47 117 91 241 201 638 53 358 749 658 1543 2739
Source: MENA Central banks, Ministries of Finance, HSBC estimates and forecasts. Fiscal year, ending 30 June
17
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Consumption & saving

Household consumption %, y-o-y 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria Bahrain Egypt Jordan Iraq Kuwait Lebanon Morocco Oman Pakistan Qatar Saudi Arabia Tunisia UAE*
5.8 3.0 2.1 17.0 6.2 5.3 4.9 6.1 10.1 33.6 5.3 5.3 22.5
4.8 8.6 4.8 5.1 11.2 2.1 2.3 -1.7 12.9 28.3 8.8 4.8 14.1
3.5 5.7 6.4 6.3 7.7 -1.0 6.9 9.6 1.0 17.0 10.2 4.9 21.9
6.9 2.5 4.2 5.8 9.0 6.1 3.8 8.8 4.7 14.5 17.7 5.2 25.5
8.3 5.1 5.7 4.8 6.8 9.6 6.0 6.0 -2.7 12.8 3.5 4.8 22.3
4.9 -2.9 5.7 1.7 3.0 9.1 4.6 3.0 12.2 4.5 6.7 3.9 2.0
5.0 4.2 4.1 3.1 3.0 6.8 2.2 3.4 4.0 5.0 3.2 4.5 3.8
4.0 1.5 4.5 3.0 3.5 2.7 6.5 3.0 7.0 6.0 5.0 0.0 3.5
5.0 2.2 6.5 3.0 3.5 3.0 3.0 4.0 2.5 6.0 4.2 3.0 5.2
4.0 4.0 4.2 4.0 4.0 4.0 4.0 4.0 3.0 6.0 4.0 5.0 6.2
*Nominal data. Fiscal year, ending 30 June Source: MENA Central Banks, HSBC estimates and forecasts
Nominal gross savings (% GDP, 2011)
Nominal domestic demand (% GDP, 2011)
60 50 40 30 20 10 0 Qatar
% GDP
18
150 100 50 0
KSA Kuwait Oman UAE
2004
Bahrain
Morocco
Pakistan
Tunisia
Egypt
Lebanon
Jordan
Jordan
Lebanon
Tunisia
Morocco
Pakistan
Egypt
UAE
Oman
KSA
Bahrain
Kuwait
Qatar
Source: MENA Central Banks, HSBC estimates
Nominal gross savings ratios 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar Saudi Arabia Tunisia UAE Non oil producers GCC MENA
49.6 27.7 21.0 27.7 41.5 -1.6 30.8 31.6 18.4 55.3 34.6 26.5 29.8 21.5 35.0 30.3
63.1 35.4 20.9 16.1 50.4 1.8 30.6 37.9 17.7 67.8 47.2 24.7 34.9 20.4 44.9 37.9
71.7 38.2 20.4 19.2 59.1 11.8 31.6 41.6 18.2 51.1 46.6 29.6 36.0 22.1 45.2 38.9
73.3 42.7 22.6 15.1 55.3 18.0 32.4 41.7 17.7 54.2 45.9 25.6 31.7 22.6 43.4 37.7
76.7 43.3 22.8 23.0 57.7 11.3 32.9 41.9 12.8 59.1 50.7 29.2 31.7 21.2 46.6 39.6
44.0 33.7 16.8 24.3 37.7 11.6 30.6 27.5 13.0 54.5 31.7 28.2 29.4 19.0 34.1 27.6
71.7 35.4 17.7 21.5 39.6 14.2 29.7 46.7 14.6 55.9 38.6 24.4 30.9 19.0 39.1 33.0
67.1 30.8 16.5 6.3 43.9 8.8 30.3 43.3 25.7 60.6 46.9 20.6 38.2 20.9 45.7 37.6
77.9 32.8 12.5 7.0 44.5 12.9 29.4 45.8 24.4 61.7 47.2 20.1 39.3 19.2 46.5 38.3
68.3 30.4 10.8 10.1 39.9 18.6 29.9 39.8 24.7 58.8 41.5 22.5 35.9 19.5 41.9 34.5
Gross savings = Nominal USD GDP minus total consumption. Fiscal year, ending 30 June Source: MENA Central Banks, HSBC estimates and forecasts
abc
Investment
Total investment %, y-o-y 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar Saudi Arabia Tunisia UAE*
8.1 17.9 6.3 28.2 29.3 11.7 8.4 22.6 -6.1 3.6 2.5 1.0 6.8
7.9 6.9 10.3 10.4 16.5 6.0 7.4 8.6 13.5 50.8 18.5 3.1 20.2
7.2 31.1 13.3 11.0 21.0 2.8 9.7 14.0 19.9 19.0 17.0 7.9 16.3
10.5 15.2 31.8 9.7 24.4 20.4 14.3 12.0 13.6 14.0 18.8 4.1 53.6
14.8 8.2 15.5 8.7 14.0 18.4 11.5 19.0 7.3 17.0 12.6 5.3 12.5
19.1 -17.7 -9.1 -1.4 2.0 32.8 2.6 2.5 -14.8 10.0 -4.6 3.8 -15.0
12.0 17.9 8.0 16.2 4.0 10.0 -0.7 7.0 -6.1 14.0 3.6 4.3 3.8
8.0 -4.0 -4.4 -2.0 4.0 -2.0 4.5 4.0 -0.4 12.0 7.5 -6.2 4.5
8.0 2.0 -18.7 3.0 3.5 2.0 2.0 6.0 3.0 10.0 10.0 4.0 4.7
6.0 4.0 0.9 3.0 5.0 4.0 4.0 5.0 4.0 9.0 10.0 5.3 6.2
*Nominal data. Fiscal year, ending 30 June Source: MENA Central Banks, HSBC estimates and forecasts
FDI: oil vs. non - oil producers (USDbn)
Real investment growth (% chng, y-o-y, 2011)
80 60 40 20 0 2005
FDI USDbn 2004 2005 2006
F'cast
15 10 5 0 -5
Source: MENA Central Banks, HSBC estimates and forecasts
Source: MENA Central Banks, UNCTAD, HSBC estimates and forecasts. Fiscal year, ending 30 June
2006
2007
Non oil producers
0.9 0.9 0.4 0.3 0.9 0.0 2.5 0.9 0.1 1.0 1.2 1.9 0.6 10.0 6 14 22
2008
2009
1.1 1.0 3.9 0.5 2.0 0.2 3.3 1.7 1.5 1.5 2.5 12.1 0.8 10.9 13 28 43
2010
Oil Producers
2011
1.8 2.9 6.1 0.4 3.5 0.1 3.1 2.5 1.6 3.5 3.5 18.3 3.3 12.8 22 39 63
2012f
2013f
2007
-10 Qatar
2008
Source: MENA Central Banks, HSBC estimates. *Nominal data
Algeria
2009
KSA
UAE*
Morocco
2010
Kuwait
Oman
2011
Pakistan
Lebanon
Jordan
2012f
Bahrain
Egypt
2013f
Tunisia
1.7 1.8 11.1 1.0 2.6 0.1 3.4 2.8 3.3 5.1 4.7 24.3 1.6 14.2 27 48 78
2.6 1.8 13.2 1.9 2.8 0.0 4.3 2.5 2.4 5.4 4.1 39.5 2.8 13.7 31 61 97
2.8 0.3 8.1 1.5 2.4 1.1 4.8 1.3 2.2 3.7 8.7 36.5 1.7 4.0 22 53 79
2.3 0.2 6.8 1.4 1.7 0.1 3.2 2.5 2.0 1.5 5.0 21.6 1.5 4.0 17 33 54
2.3 0.1 2.2 0.3 1.0 0.1 1.3 1.0 1.4 2.0 4.0 13.5 0.4 2.8 8 22 32
2.5 0.4 1.2 1.0 0.9 0.1 1.2 1.5 1.8 2.0 5.0 10.0 0.8 2.0 8 19 30
2.8 0.5 2.0 2.0 1.2 0.2 1.9 2.0 2.0 2.0 5.0 10.0 1.5 3.0 11 21 36
19
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Credit
Real private sector credit %, y-o-y 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria* Bahrain Egypt Iraq* Jordan Kuwait Lebanon* Morocco* Oman Pakistan Qatar Saudi Arabia Tunisia** UAE* Non oil producers GCC MENA
13.7 19.8 -6.6 15.2 23.0 3.5 7.1 4.0 9.1 21.5 36.6 9.7 18.4 4.4 27.2 17.5
30.2 17.2 -1.9 19.6 11.0 -6.6 10.5 4.1 18.6 52.1 38.2 7.1 32.7 8.5 32.3 24.1
14.3 16.6 3.9 22.6 20.9 0.3 17.9 1.7 9.2 46.6 7.9 5.4 20.7 8.8 15.8 13.0
10.0 37.0 3.3 8.6 28.8 6.6 28.3 -2.3 7.8 40.2 13.9 3.3 37.0 9.8 24.4 17.6
10.4 33.2 -28.7 29.6 2.4 -1.4 13.1 20.2 -5.8 -13.2 32.8 18.9 6.2 36.0 -8.7 21.4 13.2
8.8 -3.6 -2.5 19.0 2.6 2.0 11.7 8.9 5.1 -12.9 13.3 -4.8 5.5 -0.4 -1.9 -0.2 1.4
9.8 -2.1 -2.9 72.8 2.4 -10.1 18.3 5.2 1.8 -8.7 7.5 -0.6 14.5 -2.3 -0.4 -1.3 5.3
3.0 1.0 -10.7 10.0 3.8 -3.6 5.0 2.0 2.7 -10.2 5.8 6.7 3.7 -0.1 -6.2 3.2 1.2
4.5 3.5 -8.2 13.0 6.0 -4.9 1.5 5.0 1.8 1.9 16.2 10.2 3.2 3.3 -1.0 6.6 5.0
5.7 7.0 -6.5 13.0 9.0 -0.5 3.5 7.0 1.1 7.4 15.3 14.5 4.5 5.8 2.2 9.4 7.4
Adjusted for the rate of inflation. *Claims on the private sector. **Loans to the economy Source: MENA Central Banks, HSBC estimates and forecasts
Private sector credit (% GDP, 2011)

100 80 60
Real private sector credit growth (% chng y-o-y, 2011)

10 5 0
40 20 0 Morocco Jordan Lebanon Tunisia UAE Bahrain Kuwait KSA Oman Qatar Egypt Pakistan Algeria Iraq
-5 -10 Iraq KSA Qatar Lebanon Jordan Tunisia Algeria Oman Morocco Bahrain UAE Kuwait Pakistan Egypt
Private sector credit % GDP 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
11.0 47.9 57.8 76.5 56.3 74.2 47.8 34.5 27.7 26.8 32.3 51.4 34.3 45.0 35.7 35.4
11.9 47.8 53.7 86.8 50.1 66.6 51.5 30.8 30.3 33.1 35.6 51.5 39.7 45.9 38.4 37.0
12.4 48.2 51.9 95.9 51.7 68.3 57.1 31.1 30.5 39.2 34.6 50.6 42.4 47.3 39.4 37.5
13.0 58.3 48.1 3.0 96.2 69.7 70.9 69.7 36.8 31.2 48.1 38.6 51.1 54.0 49.8 48.2 43.0
12.7 67.3 36.7 2.9 85.0 62.4 70.0 77.5 37.6 26.3 43.4 39.9 53.4 63.1 44.8 50.0 42.5
16.1 74.5 33.8 3.8 80.0 75.1 69.5 80.5 50.7 21.0 55.1 50.2 55.0 72.9 43.9 61.1 48.0
15.1 65.9 33.0 5.5 79.1 67.5 76.8 82.9 42.0 19.7 45.2 44.3 61.5 68.3 42.5 54.1 44.3
13.1 57.0 27.8 5.1 81.7 54.4 79.0 83.5 36.7 16.2 34.6 37.9 68.8 59.9 38.0 45.2 38.2
12.6 57.7 25.5 5.3 78.5 48.2 78.2 85.4 35.6 16.5 38.1 39.2 69.6 58.7 38.1 45.0 38.0
13.4 62.4 23.4 6.0 76.3 50.8 78.0 88.5 38.7 18.2 45.0 48.1 70.7 63.1 39.0 51.2 41.5
Source: MENA Central Banks, HSBC estimates and forecasts. Fiscal year, ending 30 June
20
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Population & GDP/Capita

Population Millions 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
32.4 0.8 70.5 27.1 5.4 2.8 3.5 30.2 2.4 152 0.7 24.0 9.9 4.3 272 35.0 366
32.9 0.9 71.9 28.0 5.6 3.0 3.6 30.5 2.5 156 0.9 24.6 10.0 4.7 277 36.5 375
33.8 1.0 73.6 28.8 5.8 3.2 3.6 30.9 2.6 159 1.0 25.2 10.1 5.0 283 38.0 384
34.4 1.0 77.5 29.7 5.9 3.4 3.7 31.2 2.7 163 1.2 25.9 10.2 5.4 291 39.7 395
34.5 1.1 79.1 31.9 6.1 3.4 3.7 31.6 2.9 166 1.4 26.6 10.3 5.8 297 41.2 405
35.0 1.2 83.5 32.1 6.3 3.5 3.7 32.0 2.9 170 1.6 27.3 10.4 5.7 306 42.2 415
35.5 1.2 84.5 31.4 6.5 3.6 3.8 32.4 3.0 173 1.7 28.0 10.5 5.8 311 43.2 421
36.0 1.2 85.6 32.1 6.6 3.7 3.9 32.8 3.0 177 1.8 28.7 10.7 6.0 317 44.3 429
36.6 1.3 86.8 32.7 6.7 3.7 3.9 33.2 3.1 181 1.9 29.4 10.8 6.2 323 45.5 438
37.1 1.3 87.9 33.4 6.8 3.8 4.0 33.5 3.1 185 2.0 30.1 10.9 6.3 328 46.6 446
Source: MENA Central Banks, IMF, HSBC estimates and forecasts. Fiscal year, ending 30 June
Population (Millions, 2011)
GDP per capita (USD '000, 2011)
Pakistan Egy pt Algeria Morocco Iraq KSA Tunisia Jordan UAE Kuw ait Lebanon Oman Qatar Bahrain 0 20 40 60 80 100 120 140 160 180
100 80 60 40 20 0 Qatar UAE Kuwait Oman Bahrain KSA Lebanon Algeria Iraq Tunisia Jordan Morocco Egypt Pakistan
Source: MENA Central Banks, IMF, HSBC estimates
Source: MENA Central Banks, IMF, HSBC estimates
GDP per capita USD 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
2,637 13,639 1,117 1,787 2,114 21,586 6,064 2,038 10,213 607 42,652 10,453 3,232 34,214 1,091 15,003 2,610
3,136 15,143 1,239 1,778 2,260 27,004 6,068 1,871 12,323 669 46,862 12,843 3,062 38,707 1,133 18,170 3,018
3,468 16,505 1,460 2,385 2,297 31,908 6,209 2,213 14,265 763 54,432 14,132 3,483 44,073 1,294 20,759 3,497
3,929 17,773 1,683 3,088 2,566 33,737 6,859 2,555 15,292 851 58,499 14,863 3,994 47,874 1,467 22,406 3,909
4,983 20,073 2,056 4,173 3,209 42,953 8,154 2,691 21,104 974 79,580 17,936 4,062 54,568 1,675 27,594 4,795
3,949 16,650 2,249 3,709 3,385 35,729 9,337 2,913 16,248 970 59,682 13,825 4,294 47,810 1,777 22,233 4,188
4,563 17,762 2,476 4,684 3,578 40,515 10,227 2,834 20,445 1,038 75,668 16,033 4,129 49,689 1,873 25,257 4,709
5,659 20,711 2,773 5,631 3,758 51,669 10,667 2,881 25,914 1,196 101,624 20,480 3,831 55,593 2,038 31,425 5,646
6,036 21,496 2,895 6,389 4,087 60,109 11,148 3,296 28,774 1,269 104,597 22,199 4,493 57,768 2,185 33,977 6,124
6,122 21,633 2,975 6,583 4,477 59,850 11,791 3,480 29,050 1,327 99,199 21,234 4,850 56,397 2,279 33,084 6,145
Source: MENA Central Banks, IMF, HSBC estimates and forecasts. Fiscal year, ending 30 June
21
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Inflation
CPI inflation %, y-o-y 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
1.4 3.3 10.6 27.0 2.4 -8.4 1.7 0.5 2.0 9.0 8.5 0.4 1.1 7.0 6.0 1.9 4.4
2.3 2.5 4.7 37.0 5.5 4.4 -2.6 2.1 1.9 8.5 12.6 0.8 4.0 9.0 4.9 4.3 5.8
3.7 2.1 7.3 53.2 3.4 3.7 5.6 3.3 4.3 8.9 12.0 2.0 3.0 10.5 6.4 5.4 8.0
4.9 4.1 8.5 30.8 7.1 7.5 9.3 2.0 8.3 8.8 13.7 6.7 5.1 11.1 7.1 8.7 9.2
5.7 5.1 20.2 2.7 13.1 9.0 5.5 4.2 11.8 23.3 13.2 9.0 4.1 6.5 15.9 8.8 10.1
6.0 1.6 10.0 -2.8 -0.5 2.1 3.4 1.5 0.9 10.5 -5.6 4.2 4.1 -0.4 7.4 1.4 3.2
2.7 1.0 10.7 6.0 6.1 6.0 4.5 2.2 4.2 15.5 0.4 5.4 4.0 1.8 9.7 3.8 5.7
4.0 1.0 11.8 5.0 4.2 3.1 4.0 3.0 3.3 12.5 2.3 5.3 4.2 1.5 9.5 3.5 5.3
3.5 2.5 9.5 5.0 4.0 4.9 3.5 3.0 4.2 13.1 3.8 4.8 3.3 1.7 8.6 3.9 5.2
4.3 3.0 10.0 5.0 3.0 3.8 3.5 3.0 4.9 12.6 4.7 5.5 4.5 2.2 8.6 4.3 5.5
Source: MENA Central Banks, MENA departments of statistics, HSBC estimates and forecasts.
Inflation in the GCC (% chng, y-o-y)
and in the greater MENA region (% chng, y-o-y)
6 4 2 0 Bahrain
20 15 10 5 0 2004 2005 2006 2007 2008
15 10 5 0 Algeria Egypt Jordan Iraq Lebanon Morocco Pakistan Tunisia Kuwait Oman 2011 2012f Qatar 2013f KSA UAE
2011
2012f
2013f
Source: MENA Central Banks, MENA departments of statistics, HSBC estimates and forecasts
Regional consumer price inflation (%, y-o-y)
Forecasts
2009
2010
2011
2012f
2013f
GCC
MENA
Non oil producers
22
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Public finances
Budget balance % GDP 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar Saudi Arabia Tunisia UAE Non - oil producers GCC MENA
14.1 4.1 -9.5 -35.4 -12.8 18.1 -9.4 -3.0 5.1 -2.5 16.4 11.4 -2.0 7.1 #REF! 10.4 4.1
13.7 7.6 -9.6 -10.7 -10.9 24.8 -8.6 -3.9 13.1 -3.0 19.2 18.4 -2.4 15.9 -5.6 16.9 9.1
13.9 4.7 -8.2 -1.6 -8.0 52.0 -13.5 -1.5 10.8 -4.2 7.2 21.0 -6.6 21.0 -5.8 21.4 12.1
6.2 3.1 -7.3 8.8 -8.9 33.6 -10.2 0.7 8.1 -5.9 7.3 12.2 -2.5 17.3 -5.1 14.9 8.2
9.4 6.6 -6.8 3.9 -10.1 38.4 -9.7 0.4 8.7 -7.9 8.7 32.5 -1.1 17.0 -5.4 23.3 13.4
-5.7 -6.0 -6.9 -12.4 -12.2 11.2 -8.5 -1.1 -4.6 -5.1 11.7 -6.1 -2.9 -10.6 -5.2 -2.9 -4.5
-1.1 -5.6 -8.5 -7.9 -8.8 17.8 -7.5 -1.8 3.2 -6.5 11.6 6.5 -1.4 2.3 -6.0 6.6 1.2
3.1 -2.5 -9.4 0.8 -11.5 20.3 -5.2 -6.4 9.7 -6.1 2.1 13.9 -5.3 11.6 -7.2 11.5 5.0
0.5 -0.1 -11.0 4.0 -11.7 23.7 -5.1 -5.9 12.5 -5.2 10.5 11.6 -5.6 12.2 -7.4 12.3 5.5
-0.7 -3.5 -11.3 -3.1 -11.7 21.6 -5.0 -5.3 6.8 -4.4 10.3 5.2 -5.9 7.6 -7.3 8.4 2.4
Source: MENA Ministries of Finance, HSBC estimates and forecasts. Fiscal year, ending 30 June
Budget balance (% GDP)
Public debt (% GDP, domestic vs. external in 2011)
30 20 10 0 -10 2004
% GDP
0 -2 -4 -6 -8 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
150 100 50 0 Lebanon Egypt Jordan Morocco Iraq Pakistan Tunisia Bahrain UAE Algeria Kuwait KSA Qatar Oman
GCC
Non-oil producers (RHS)
Domestic debt (% GDP)

Source: Ministries of Finance, IIF, HSBC estimates.
Ex ternal debt (% GDP)
Source: MENA Ministries of Finance, HSBC estimates and forecasts
Total government debt 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
28.0 34.8 131.1 92.0 16.2 158.8 53.9 13.9 67.9 27.8 65.4 53.9 12.5 #REF! 39.6 51.5
25.0 33.8 118.3 82.9 14.6 177.2 64.8 8.6 61.9 19.3 38.9 52.4 14.5 86.3 26.5 41.8
23.6 33.0 108.6 86.1 12.4 179.9 55.1 8.0 56.4 13.3 27.3 48.6 11.7 79.4 19.2 35.0
12.5 32.0 98.4 109.0 81.8 16.2 167.8 50.5 6.2 54.4 9.3 18.5 45.8 13.2 73.9 15.6 37.0
8.2 33.0 87.0 70.6 66.9 14.4 156.4 49.4 4.1 50.2 13.4 13.2 43.6 13.8 68.6 13.4 31.0
10.4 46.2 88.3 78.3 72.5 16.2 146.4 46.0 5.5 52.5 14.5 15.9 43.0 21.1 69.8 17.4 37.4
9.8 54.6 89.8 65.0 75.1 12.7 135.5 55.0 5.4 53.7 11.1 9.9 41.5 23.1 72.3 14.5 34.9
7.9 38.3 84.0 54.1 78.1 11.0 136.8 59.1 3.7 50.9 7.8 7.4 47.2 21.9 70.5 11.8 30.3
8.2 38.6 87.3 47.8 80.9 9.6 137.4 51.5 3.2 52.6 9.2 6.4 47.6 21.3 70.8 11.0 29.4
9.7 40.2 89.3 46.1 83.2 9.9 135.7 55.8 3.2 55.1 9.9 6.3 49.9 21.3 73.0 11.2 30.8
Source: MENA Ministries of Finance, IIF, HSBC estimates and forecasts. Fiscal year, ending 30 June
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Oil
Oil production ('000 bpd) 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria Bahrain Egypt Iraq Kuwait Oman Qatar Saudi Arabia UAE GCC North Africa MENA
1,946 151 730 1,991 2,350 780 770 9,040 2,353 15,445 2,761 20,112
2,015 187 697 1,814 2,420 774 770 9,487 2,460 16,097 2,793 20,623
2,003 183 690 1,009 2,506 738 820 9,234 2,620 16,102 2,775 19,804
2,016 184 650 2,097 2,528 710 800 8,725 2,600 15,547 2,756 20,310
1,993 183 640 2,386 2,600 757 850 9,197 2,650 16,237 2,724 21,255
1,818 182 650 2,400 2,350 812 800 8,171 2,350 14,665 2,563 19,533
1,809 182 660 2,409 2,375 860 800 8,300 2,350 14,867 2,557 19,744
1,899 185 650 2,600 2,500 900 800 9,350 2,550 16,285 2,638 21,434
1,994 185 650 2,750 2,550 950 800 9,400 2,500 16,385 2,733 21,779
2,094 185 650 2,900 2,550 950 800 9,300 2,500 16,285 2,833 21,929
Source: EIA, MENA Ministries of Finance, Ministries of Economy, HSBC estimates and forecasts
Proven oil reserves (2011)
Production, % of global oil supply (2011)
300 200 100 0 KSA

Oil export revenue USD bn 2004 2005 2006 2007
12 8 4 0
Iraq Kuwait UAE Qatar Algeria Oman Egypt
KSA
Iraq
UAE
Kuwait
Algeria
Oman
Qatar
Egypt
Reserv es (barrels, bn)
Oil Production (% global supply )

Source: EIA, MENA Ministries of Finance, Ministries of Economy
Source: EIA, MENA Ministries of Finance, Ministries of Economy
2008
2009
2010
2011f
2012f
2013f
Algeria Bahrain Egypt Iraq Kuwait Oman Qatar Saudi Arabia UAE North Africa GCC MENA
24.0 5.6 2.1 0.0 26.7 9.1 10.6 92.9 32.9 26.1 177.6 203.7
35.2 7.8 1.6 0.0 42.4 13.2 14.1 136.1 46.8 36.9 260.5 297.4
42.0 9.2 2.3 0.0 53.2 14.4 25.0 160.4 60.5 44.3 322.7 367.0
46.1 10.8 2.7 39.3 59.1 14.4 21.1 168.4 66.4 48.8 340.2 428.3
61.5 13.8 3.4 63.2 82.8 21.9 28.9 246.9 92.9 64.8 487.3 615.3
32.7 8.9 3.2 39.1 48.9 13.9 16.2 126.2 49.1 35.8 263.2 338.2
42.2 11.5 2.8 51.4 61.8 20.1 22.7 170.4 61.1 45.0 347.6 443.9
59.0 15.6 3.6 75.9 86.3 28.4 30.2 263.8 86.1 62.6 510.4 648.9
69.7 18.2 4.4 91.1 105.1 33.8 34.1 300.9 96.3 74.2 588.4 753.7
66.6 16.9 4.5 86.3 98.0 30.5 31.4 270.5 88.2 71.2 535.6 693.0
Note: Oil revenue = revenues from oil export Source: EIA, MENA Ministries of Finance, HSBC estimates and forecasts
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External balance
Current account balance % GDP 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
14.1 2.8 4.3 -5.0 0.3 26.5 -23.4 1.7 3.8 2.0 21.9 15.4 3.2 7.1 0.8 13.9 8.9
21.7 10.9 3.3 -15.1 -18.0 35.8 -19.8 1.8 16.8 -1.5 32.4 29.0 3.0 13.5 -1.0 24.9 15.6
25.0 13.8 1.6 1.8 -13.1 43.2 -11.1 2.2 15.4 -4.2 16.7 27.9 6.2 16.2 -1.0 24.9 16.7
23.0 15.7 1.7 21.9 -18.9 34.9 -9.7 -0.1 10.0 -5.1 12.7 24.5 1.9 7.6 -2.2 19.1 13.7
20.5 9.4 0.5 21.4 -10.3 40.0 -19.2 -5.2 8.4 -8.8 13.8 27.9 3.7 7.1 -4.8 20.9 14.3
1.0 6.3 -2.4 -1.0 -5.3 22.5 -22.7 -5.0 -0.7 -5.7 6.8 6.2 3.8 2.9 -4.7 7.1 2.4
14.3 6.3 -2.1 -0.2 -5.4 23.2 -21.0 -5.4 11.0 -2.0 16.4 15.7 -0.4 5.0 -3.8 13.5 7.5
9.6 6.6 -1.2 10.5 -20.4 30.3 -25.1 -5.1 13.4 0.3 28.8 27.3 -4.2 12.8 -3.7 23.3 14.0
13.0 8.9 -2.0 12.2 -19.8 32.6 -20.9 -4.4 16.9 -1.2 28.7 26.9 -5.1 13.8 -4.2 24.0 14.8
8.9 5.3 -2.6 5.0 -16.7 27.6 -15.3 -4.0 9.0 -0.9 22.0 17.5 -2.9 9.4 -3.7 17.0 9.7
Source: MENA Ministries of Finance/ Ministries of Economy, HSBC estimates and forecasts. Fiscal year, ending 30 June
Trade and current account balances (% GDP, 2011)

50 25 0 -25 -50 Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar KSA Tunisia UAE
Current account balance: Non oil vs. GCC (% GDP)
30 20 10 0 -10
2004 2005 2006 2007 2008 2009 2010 2011
F'cast
0 -1 -2 -3 -4 -5
2012f
2013f
Trade balance (% GDP)
Current account balance (% GDP)
GCC
Non - oil producers (RHS)
Source: MENA Ministries of Finance/ Ministries of Economy, HSBC estimates
Source: MENA Ministries of Finance/ Ministries of Economy, HSBC estimates and forecasts
Trade balance % GDP 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
15.9 12.3 -9.9 -7.2 -29.6 26.9 -31.6 -11.4 22.2 -1.4 40.0 33.8 -7.8 18.6 -9.7 28.1 13.5
24.7 18.0 -11.6 -4.4 -39.8 36.0 -34.4 -13.8 34.5 -4.4 39.3 40.1 -6.1 23.7 -11.8 34.4 19.0
27.9 27.5 -11.2 15.1 -38.3 38.2 -31.7 -14.8 31.8 -7.1 31.0 41.5 -7.3 25.9 -12.4 35.2 20.5
24.2 14.7 -12.5 21.9 -42.3 35.9 -35.9 -18.7 24.7 -7.2 26.1 39.4 -7.4 18.0 -13.9 30.5 17.1
22.3 13.9 -14.4 21.2 -36.4 42.4 -42.1 -21.9 28.1 -9.5 24.9 44.6 -9.0 20.0 -16.2 34.0 19.2
4.1 11.5 -13.4 0.8 -29.6 26.8 -36.5 -18.2 24.6 -7.8 23.9 28.0 -8.5 15.6 -14.3 23.3 8.5
5.3 11.2 -12.0 5.3 -29.4 30.8 -35.7 -19.5 29.4 -6.5 39.8 33.3 -10.4 18.7 -13.7 29.2 12.9
13.0 22.6 -10.0 15.5 -42.6 35.2 -37.4 -18.9 30.9 -4.9 50.9 43.1 -17.7 27.8 -13.2 38.3 20.8
16.4 25.5 -11.0 17.2 -41.7 37.2 -37.4 -18.5 33.6 -6.1 51.5 43.4 -20.0 29.6 -14.0 39.5 21.8
12.5 22.9 -13.2 10.4 -38.7 32.6 -35.8 -17.9 25.3 -5.8 46.9 36.4 -19.6 26.2 -14.4 34.0 17.1
Source: MENA Ministries of Finance/ Ministries of Economy, HSBC estimates and forecasts. Fiscal year, ending 30 June
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External debt
External debt USD bn 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
22 6 30 142 13 15 28 17 6 33 13 38 19 40 140 118 423
17 7 29 109 13 20 29 16 6 33 18 45 19 58 139 154 420
6 8 30 98 14 31 31 17 6 34 26 55 18 93 144 220 468
5 9 30 102 15 58 32 19 7 37 42 89 19 149 152 354 613
5 10 34 97 14 61 34 20 9 40 57 96 22 160 164 393 658
6 10 32 93 14 58 35 20 8 46 84 100 21 164 168 424 691
6 11 34 95 15 60 35 21 8 52 104 104 20 163 178 450 728
7 11 35 96 16 63 37 21 9 56 109 107 22 183 187 482 772
8 11 41 97 18 66 37 22 9 63 115 112 25 190 205 503 813
9 12 44 98 20 67 39 22 10 70 120 117 27 205 224 530 860
Note: External debt is total government plus non government external debt. Fiscal year, ending 30 June Source: MENA Central Banks, IMF IFS, IIF, HSBC estimates and forecasts
External debt (USDbn)
External debt (% GDP, 2011)
200 150 100 50 0 Algeria

% GDP
26
100 90 80 70 60 50 40 30 20 10 0 Lebanon Jordan Qatar UAE Iraq Tunisia Bahrain Kuwait Pakistan Morocco KSA Egypt Oman Algeria
Source: MENA Central Banks, IMF IFS, IIF, HSBC estimates and forecasts
External debt 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Source: MENA Central Banks, IMF IFS, IIF, HSBC estimates and forecasts. Fiscal year, ending 30 June
Bahrain
Egypt
Iraq
Jordan
2011
Kuwait
26.0 56.0 37.9 293.7 127.7 26.0 132.5 29.6 22.9 36.5 39.8 15.3 60.3 27.2 48.5 22.6 44.7
Lebanon
2012f
Morocco
Oman
2013f
16.4 52.7 32.5 219.8 113.1 25.0 133.5 27.2 18.6 32.3 42.0 14.3 58.9 32.2 44.3 23.2 37.1
Pakistan
Tunisia Saudi Arabia Qatar

5.5 50.6 27.5 142.5 111.1 30.4 137.4 26.3 17.1 28.5 46.3 15.5 52.8 41.9 39.8 27.8 35.0
UAE
3.6 49.6 22.9 111.2 113.2 50.2 127.1 24.7 17.5 27.4 58.8 23.2 49.3 57.7 36.5 39.8 40.0
Source: MENA Central Banks, IMF IFS, IIF, HSBC estimates and forecasts
3.0 46.9 20.8 72.6 90.9 41.3 112.3 22.7 14.1 25.5 49.5 20.2 48.8 50.7 33.3 34.5 34.0
4.1 53.5 16.8 78.0 72.6 45.9 100.9 21.8 16.8 28.6 85.7 26.5 48.2 60.8 31.4 45.2 39.9
3.8 48.1 16.1 64.5 72.9 41.2 91.1 20.4 13.7 29.7 80.8 23.2 46.0 56.7 30.4 41.2 36.7
3.4 41.4 14.7 53.0 70.7 33.3 89.2 20.0 11.4 27.0 60.3 18.2 49.1 55.0 28.5 34.6 31.7
3.5 40.7 16.3 46.3 73.0 29.5 85.2 19.1 10.4 27.8 58.1 17.2 50.7 53.4 29.2 32.6 30.4
3.8 42.4 17.0 44.6 73.5 29.4 84.3 18.1 10.6 29.2 59.8 18.4 52.0 57.2 30.0 34.4 31.5
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Reserves
Central bank reserves (incl. gold, excluding sovereign wealth funds) USD bn 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
43 2 15 8 5 7 12 16 2 11 3 27 4 18 62 60 174
56 2 19 12 5 8 12 16 2 10 5 155 4 21 67 193 328
78 3 23 20 7 12 13 20 4 11 5 226 7 28 81 278 456
110 4 31 31 8 16 13 24 5 13 9 305 8 77 97 417 655
143 4 35 50 9 17 20 22 5 9 10 442 9 32 103 509 805
149 4 31 44 12 18 29 22 5 10 18 410 11 35 115 490 798
163 5 35 50 13 19 29 22 6 13 31 440 9 37 121 537 871
183 4 26 57 12 20 31 23 6 14 34 535 7 41 113 640 993
212 5 14 61 12 21 33 24 7 13 38 608 8 45 103 723 1099
232 5 22 65 12 22 34 25 7 13 41 648 10 51 117 774 1187
Fiscal year, ending 30 June. Source: MENA Central Banks, IMF IFS, HSBC forecasts
Central bank reserves (months of import cover, 2011)
Central bank reserves including estimated sovereign wealth funds (% of GDP, 2011)
20 15 10 5 0 2004
Months
250 200 150 100 50
Source: MENA Central Banks, IMF IFS, Monitor Group, HSBC estimates
Central bank reserves Import cover 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Source: MENA Central Banks, IMF IFS, HSBC forecasts. Fiscal year, ending 30 June
2005
2006
2007
Non-oil producers
2008
23.7 3.8 7.4 4.2 8.4 4.9 10.9 9.9 3.9 7.2 5.7 3.9 3.4 2.8 7.4 3.6 6.1
2009
27.2 3.0 7.3 9.6 6.6 4.3 11.6 8.5 4.7 5.1 5.5 21.4 3.6 2.7 6.6 10.5 10.3
2010
GCC
2011
36.4 3.8 6.9 15.1 7.5 5.4 12.7 9.3 4.4 4.6 5.9 24.1 4.9 2.9 6.7 12.5 12.1
2012f
2013f
39.4 4.5 7.9 22.8 7.3 5.7 11.3 8.4 5.9 5.3 4.1 25.4 4.5 5.6 6.7 13.9 13.4
0 UAE 35.0 3.2 6.4 20.8 6.6 5.1 11.5 5.7 5.2 2.4 3.7 30.2 4.0 1.7 5.4 13.4 12.7 Kuwait Algeria 36.3 4.4 6.1 17.7 10.6 6.3 15.4 7.3 6.9 4.2 7.7 30.7 6.3 2.2 6.8 14.9 14.1 KSA Lebanon Qatar 34.9 5.2 6.8 19.4 10.7 6.2 14.9 6.3 6.5 5.5 13.7 32.7 4.7 2.2 6.6 15.2 14.4 Bahrain Jordan Iraq 33.4 3.6 4.9 21.3 7.5 6.1 15.6 6.3 4.8 5.1 11.2 35.6 3.1 2.1 5.7 16.0 14.6 Morocco Oman Tunisia Egypt Pakistan
Source: MENA Central Banks, IMF IFS, Monitor Group, HSBC estimates
37.7 3.6 2.1 21.7 6.8 5.8 15.4 6.3 4.6 4.6 11.2 34.1 3.1 2.1 4.6 16.0 14.5
37.9 4.1 2.8 21.9 6.8 5.4 15.4 5.9 4.2 4.3 11.0 30.9 3.3 2.2 4.7 15.3 14.1
27
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Exchange rates & interest rates

Exchange rates (local curr vs.USD, period end) 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f
Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar Saudi Arabia Tunisia UAE
72.6 0.38 6.19 1462 0.71 0.29 1508 8.22 0.38 58.1 3.64 3.75 1.21 3.67
73.4 0.38 5.79 1479 0.71 0.29 1508 9.25 0.38 59.6 3.64 3.75 1.36 3.67
71.2 0.38 5.76 1391 0.71 0.29 1508 8.46 0.38 60.2 3.64 3.75 1.30 3.67
66.8 0.38 5.69 1216 0.71 0.27 1508 7.71 0.38 60.5 3.64 3.75 1.22 3.67
71.2 0.38 5.33 1172 0.71 0.28 1508 8.10 0.38 68.0 3.64 3.75 1.31 3.67
72.7 0.38 5.59 1170 0.71 0.29 1508 7.86 0.38 81.4 3.64 3.75 1.31 3.67
74.9 0.38 5.70 1170 0.71 0.28 1508 8.33 0.38 84.6 3.64 3.75 1.44 3.67
76.1 0.38 5.97 1165 0.71 0.28 1508 8.59 0.38 89.7 3.64 3.75 1.50 3.67
75.8 0.38 6.25 1150 0.71 0.28 1508 7.83 0.38 93.0 3.64 3.75 1.35 3.67
75.7 0.38 6.60 1135 0.71 0.28 1508 7.79 0.38 95.0 3.64 3.75 1.34 3.67
Source: MENA Central banks, HSBC forecasts. Fiscal year, ending 30 June
Policy rate (%) in 2011
Real policy rate (%) in 2011
14 12 10 8 6 4 2 0 Algeria
Policy rate % pa, period end 2004 2005 2006 2007
6 4 2 0 -2 -4 -6 Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar KSA Tunisia UAE Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar KSA Tunisia UAE
Source: MENA Central Banks
Source: MENA Central Banks
2008
2009
2010
2011
2012f
2013f
Algeria Bahrain Egypt Iraq Jordan Kuwait Lebanon Morocco Oman Pakistan Qatar Saudi Arabia Tunisia UAE
4.00 10.00 6.00 3.75 4.75 20.00 3.25 1.61 7.50 4.95 2.25 5.00 2.95
4.00 10.00 7.00 6.50 6.00 12.00 3.25 4.15 9.00 4.40 4.25 5.00 4.70
4.00 9.00 16.00 7.50 6.25 12.00 3.25 6.34 9.00 5.15 4.70 5.25 4.75
4.00 4.00 9.00 20.00 7.00 6.25 12.00 3.25 6.02 9.50 4.00 4.00 5.25 4.25
4.00 0.75 11.50 15.00 6.25 3.75 12.00 3.32 1.97 12.00 2.00 1.50 5.25 1.50
4.00 0.50 8.50 7.00 4.75 3.00 10.00 3.31 2.00 14.00 1.50 0.25 4.50 1.00
4.00 0.50 8.50 6.00 4.25 2.50 10.00 3.25 2.00 12.50 1.50 0.25 4.50 1.00
4.00 0.50 8.50 6.00 4.50 2.50 10.00 3.25 2.00 13.50 0.75 0.25 3.50 1.00
4.00 0.50 9.50 6.00 4.50 2.50 10.00 0.00 2.00 12.00 0.75 0.25 3.50 1.00
4.00 0.50 9.50 5.50 4.50 2.50 10.00 0.00 2.00 12.00 0.75 0.25 3.50 1.00
Source: MENA Central banks, HSBC forecasts. Fiscal year, ending 30 June
28
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Country outlooks
29
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Algeria
Money isnt everything
May 10 will see Algerias secular government facing its biggest challenge in two decades as seven Islamist parties, led by the Green Alliance, contest parliamentary elections. Although activists maintain that electoral reforms were superficial, trends elsewhere in the region, as well as historical example, suggest that the Islamist parties should do better this time around. This would not necessarily mean dramatic policy shifts: the FLN and RNDs support networks are so established that they are likely to retain a strong presence in government. But the withdrawal of the Movement of Society for Peace (MSP) from the ruling coalition to stand with the Green Alliance has created a significant opposition challenge, and the next government is likely to be more fragmented than the current one. A relatively strong showing for Islamist parties could see Algeria in a similar position to Morocco, with pre-emptive democratic reforms reducing the risk of more turbulent political change. Disappointment or perceptions of electoral fraud could lead to some protests, but
Key data and forecasts 2006 2007 2008 2009 2010 2011 2012f 2013f
memories of the decade-long civil war should be sufficient to prevent history from repeating itself. Whoever is in government faces the challenge of turning Algerias wealth into jobs for its young population. For now, the focus seems to be on saving, rather than investing. Strong oil revenues allowed the Banque dAlgerie to add USD20bn to its reserves in 2011, and the government to pay down a further USD1bn of its debt. There is little evidence, though, that this wealth is feeding through into growth and job creation. Growth in government spending is largely in recurrent outlays, which were up nearly 40% y-oy in 2011, as opposed to investment, which rose only 3% (against 5% inflation). Industrial production also looks sluggish and private sector credit accounts for just 13% of GDP. The opening of the (tiny and illiquid) Algiers Stock Exchange to foreign investors in March 2012 is a good start, but in general, capital markets are nascent. We also have some concerns about inflation, which spiked to 7.5% y-o-y in January higher than the levels which brought protesters out into the streets in the same month of 2011.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External Debt (% GDP) Policy rate (% end year) USD/DZD (end year) EUR/DZD (end year)
2.8 25.0 13.9 27.9 3.7 23.6 5.5 4.0 71.2 92.5
3.8 23.0 6.2 24.2 4.9 12.5 3.6 4.0 66.8 96.1
3.6 20.5 9.4 22.3 5.7 8.2 3.0 4.0 71.2 97.1
2.7 1.0 -5.7 4.1 6.0 10.4 4.1 4.0 72.7 100.8
4.8 14.3 -1.1 5.3 2.7 9.8 3.8 4.0 74.9 98.3
4.4 9.6 3.1 13.0 4.0 7.9 3.4 4.0 76.1 98.0
4.6 13.0 0.5 16.4 3.5 8.2 3.5 4.0 75.8 99.1
3.5 8.9 -0.7 12.5 4.3 9.7 3.8 4.0 75.7 99.6
Source: Algeria Central Bank, Ministry of Finance, IMF IFS, Office of National Statistics, HSBC estimates and forecasts
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Bahrain
Holding up, not bouncing back
Full year growth numbers suggest the Bahraini economy held up in 2011, with real GDP expanding by 2.2%. The main sectors hit by the political unrest were real estate (-5%), construction (-3%) and hotels and restaurants (13%). However, the oil sector was up 3%, and manufacturing (+4%) and finance (+3%) also put in good performances. Private sector credit also picked up quite substantially in the second half of 2011, and although it has dropped off somewhat more recently, the y-o-y rate of 15% in January is still remarkably robust. Deposit growth stood at 10% yo-y in the same month again an indication of a relatively resilient banking sector performance. Despite this, and despite the fact that we see a small pick-up in growth this year, Bahrain will still have the lowest rate of growth in the GCC in 2012, in our view. Political turmoil, which sent growth negative in 1Q11, has resumed in 1Q12, and will weigh on investor and consumer confidence at least through the first half of the year. While protests on the anniversary of the
beginning of last years unrest proved quieter than anticipated, the pace has picked up since then, with several large scale rallies, ongoing clashes and at least three deaths. Dialogue between the government and the official opposition (Islamist political society al-Wefaq) has resumed, but it is unclear that the former is prepared to make the kind of concessions protesters are demanding. Moreover, a recent Reuters report points to a growing rift between the al-Wefaq leadership and many of the protesters, suggesting that even if an agreement is reached with the government, the unrest could continue. Already, the groups leaders calls not to escalate rallies into violence appear to be going unheeded. One positive for Bahrains embattled government this year will be higher oil prices. However, even assuming an average price of USD120/bbl, we think Bahrain will manage only to balance its budget, not return to surplus. That said, we have few worries about Bahrains creditworthiness; ultimately, promised GCC funding would likely materialise should the public finance situation worsen markedly.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/BHD (end year) EUR/BHD (end year)
6.7 13.8 4.7 27.5 2.1 33.0 50.6 NA 0.376 0.496
8.4 15.7 3.1 14.7 4.1 32.0 49.6 4.00 0.376 0.508
6.3 9.4 6.6 13.9 5.1 33.0 46.9 0.75 0.376 0.526
3.1 6.3 -6.0 11.5 1.6 46.2 53.5 0.50 0.376 0.538
4.5 6.3 -5.6 11.2 1.0 54.6 48.1 0.50 0.376 0.508
2.2 6.6 -2.5 22.6 1.0 38.3 41.4 0.50 0.376 0.534
2.5 8.9 -0.1 25.5 2.5 38.6 40.7 0.50 0.376 0.541
3.5 5.3 -3.5 22.9 3.0 40.2 42.4 0.50 0.376 0.545
Source: Bahrain Central Bank, Ministry of Finance, Bahrain Central Informatics Organisation, HSBC estimates and forecasts
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Egypt
End of the beginning
Egypts post-Mubarak political process continues to make material progress. Parliamentary elections were completed on schedule in February 2012. They were accompanied by few allegations of fraud, delivering Egypt its most credible legislature in a generation. The elections have paved the way for the rewriting of the constitution, and presidential elections in late May 2012. This will be followed by the appointment of a new, permanent government, opening the way for more effective policymaking in the second half of the year. The ambiguous balance of power between Egypts military and emergent democratic institutions could lead to strains, but we are encouraged by the readiness both sides have shown to compromise. Some may still view the emergence of the Muslim Brotherhood as leaders of the new political process with suspicion, but most have been reassured by the pragmatic policy agenda and strong support for the private sector that the Islamist movement has outlined. Nevertheless, enormous challenges remain. Economic activity remains very weak, with sharp falls in investment and exports and stagnant consumption keeping growth low and driving unemployment upward. More acutely, the central banks decision to protect the value of the Egyptian pound has cost it more than 60% of its reserves, which stood at just three months of import cover at the end of February. Interest rates also remain very high as a consequence of the governments heavy funding requirement which has crowded the private sector out of the credit market and pushed up the cost of existing funds. We expect the IMF to deliver some USD3bn in financial support in the near term and look for others to follow through on pledges they made in the aftermath of the revolution. Even with this backing, we expect to see the currency weaken significantly and the fiscal deficit remain wide. Without it, however, Egypt will likely find its funding needs very difficult to meet from its remaining domestic resources, increasing the risk of a painful and disorderly economic adjustment.
Key data and forecasts 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12f 2012/13f
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) Core CPI (% end year) Headline CPI (%, end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/EGP (end year) EUR/EGP (end year)
6.8 1.6 -8.2 -11.2 6.3 7.3 108.6 27.5 9.0 5.76 7.36
7.1 1.7 -7.3 -12.5 6.3 8.5 98.4 22.9 9.0 5.69 7.40
7.2 0.5 -6.8 -14.4 20.7 20.2 87.0 20.8 11.5 5.33 8.40
4.7 -2.4 -6.9 -13.4 7.9 10.0 88.3 16.8 8.5 5.59 7.85
5.1 -2.1 -8.5 -12.0 6.7 10.7 89.8 16.1 8.5 5.70 6.95
1.8 -1.2 -9.4 -10.0 8.9 11.8 84.0 14.7 8.5 5.97 7.46
1.8 -2.0 -11.0 -11.0 8.5 9.5 87.3 16.3 9.5 6.25 8.75
3.7 -2.6 -11.3 -13.2 7.2 10.0 89.3 17.0 9.5 6.60 9.24
Source: Egypt Central Bank, Ministry of Finance, CAPMAS, HSBC estimates and forecasts. Egypt fiscal 2011/2012 = Calendar 2012
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Iraq
So rich and yet so poor
Iraq has long been a political risk story, but we are launching quarterly coverage at a time of exceptionally challenging circumstances. Between the destabilisation of Syria and the tightening squeeze on Iran, the situation has worsened substantially for Iraq. Locally, the departure of US troops in December 2011 has coincided with a perceived political marginalisation of the Sunni community, blamed in part for the uptick in violence in the first quarter of 2012. Political risk has stood in the way of investment since the 2003 conflict, with FDI inflows, particularly outside of Kurdistan, among the lowest in the region. As a consequence, Iraq, despite having the second highest level of oil production amongst the 14 countries we cover, ranks 9th in terms of 2011 GDP per capita beneath Lebanon and Algeria according to our estimates. Non-oil exports account for less than 1% of GDP, and government spending growth particularly in the investment category has significantly underperformed revenue growth. Of course, the silver lining of the uptick in geopolitical risk is that both oil prices and production for Iraq are on the rise: a Reuters report from March 5 quoted Deputy Prime Minister Hussein al-Shahristani as saying that Iraqi oil production has exceeded 3mn b/d for the first time since 1979. We expect output to continue to rise, bringing in over USD90bn in 2012, and leaving a comfortable current account and fiscal surplus. Even if OPEC did shift into hawkish mode, which looks unlikely in the present climate, Iraq remains exempt from their quotas, meaning export volumes can continue to rise. Indeed, risks to our forecasts are to the upside if the law on oil revenue allocation is finally passed, or additional sweeteners are provided to global oil majors looking to invest in the southern fields. That said, revenues may be rising, but Iraqs breakeven oil price is rising too: we estimate it needs an oil price of USD106/b to balance its budget in 2012. The other positive is, of course, the Kurdistan story. Political stability and a strong business climate have paid dividends for the northern region, but it remains subject to the unpredictable legislative environment in Baghdad. Overall, the country will continue to perform below potential if the political climate constrains progress on reform, and deters investment. What growth we see in 2012-13 will be driven largely by the oil sector.
Key data and forecasts 2006 2007 2008 2009 2010e 2011f 2012f 2013f
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/IQD (end year) EUR/IQD (end year)
10.2 1.8 -1.6 15.1 53.2 0.0 142.5 16.0 1391 1836
1.4 21.9 8.8 21.9 30.8 99.9 111.2 20.0 1216 1642
6.6 21.4 3.9 21.2 2.7 93.9 72.6 15.0 1172 1641
9.3 -1.0 -12.4 0.8 -2.8 93.3 78.0 7.0 1170 1673
7.3 -0.2 -7.9 5.3 6.0 95.5 64.5 6.0 1170 1580
5.6 10.5 0.8 15.5 5.0 97.8 53.0 6.0 1165 1654
4.1 12.2 4.0 17.2 5.0 99.9 46.3 6.0 1150 1656
5.8 5.0 -3.1 10.4 5.0 101.3 44.6 5.5 1135 1646
Source: Iraq Central Bank, Ministry of Finance, Iraq Central Organization of Statistics & Information Technology (COSIT), HSBC estimates and forecasts
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Jordan
Depressed
Jordan continues to struggle against the impact of slowing tourist arrivals, higher oil prices and a difficult political environment. We still do not see it as a regime under threat: small-scale rallies have continued, but even on the anniversary of the protest movement March 24 the number of attendees was only in the hundreds. Rather, it is a story of stagnation. Prime Minister Awn Khasawnehs new government has now been in power since October 2011, but there has been little in the way of political or economic reform. What growth we are seeing appears to be externally driven: exports were up 13% in 2011 (6% in real terms), which corresponds with some good numbers on the GDP front: the mining and quarrying sector was up 14% y-o-y in real terms in 3Q11, while manufacturing rose 4% (driving an overall GDP reading of 2.6% in 3Q11). However, as well as being vulnerable to a soft global demand climate, this export growth was also dwarfed by a 30% increase in imports. Moreover, tourist arrivals were down 22% in 2011. FDI inflows (USD0.8bn in the first three quarters of 2011) and foreign grants (USD1.2bn) mitigated against a severe worsening of the balance of payments, but there were clear signs of stress. Reserves were down USD2bn (11%) y-o-y in December 2011, and were still falling in January. In addition, the Central Bank of Jordan raised rates by 50bps on February 6, in an apparent bid to shore up the currency. (Inflation was, and is, under control). On the domestic front, the picture is not much better. Public finances are tight. Full year data are not available but annualising January-November numbers suggests a deficit of 11.5% of GDP in 2011 (excluding grants). Jordan recently raised the price of gas, in response to the shortages following attacks on the Egyptian pipeline a sign of a more conservative fiscal policy which we expect to persist: the country also breached its own debt ceiling in 2011. This, alongside high unemployment and slowing credit growth, suggests significant constraints on domestic demand going forward.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/JOD (end year) EUR/JOD (end year)
8.0 -13.1 -8.0 -38.3 3.4 86.1 111.1 7.50 0.709 0.936
7.2 -18.9 -8.9 -42.3 7.1 81.8 113.2 7.00 0.709 0.957
6.6 -10.3 -10.1 -36.4 13.1 66.9 90.9 6.25 0.709 0.993
2.1 -5.3 -12.2 -29.6 -0.5 72.5 72.6 4.75 0.709 1.014
3.4 -5.4 -8.8 -29.4 6.1 75.1 72.9 4.25 0.709 0.957
2.7 -20.4 -11.5 -42.6 4.2 78.1 70.7 4.50 0.709 1.007
2.3 -19.8 -11.7 -41.7 4.0 80.9 73.0 4.50 0.709 1.021
3.4 -16.7 -11.7 -38.7 3.0 83.2 73.5 4.50 0.709 1.028
Source: Jordan Central Bank, Ministry of Finance, Jordan Department of Statistics, HSBC estimates and forecasts
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Kuwait
New parliament, old politics
Elections in February brought 26 new faces to power a substantial proportion of the 50 seats in parliament. Many of these were Islamist in leaning, emphasising that the Gulf is not immune to political trends seen elsewhere in the MENA region (particularly since the Arab Spring). However, we do not expect this to translate into a change in the policymaking environment. The opposition took just one seat in the cabinet (appointed by the emir), suggesting that longstanding tensions between the legislative and the executive will continue. Corruption will remain high on the parliamentary agenda, and religious issues may also gain some airtime, albeit without making a major impact on policy in all likelihood. One thing the politicians did manage to agree on was a 25% wage rise for public sector workers (and a 12.5% increase for pensioners), announced in March 2012, following large scale strikes, most recently by Kuwait Airways staff and customs officials. The increase follows a number of pay rises and grants announced last year in the wake of protests, to the point where Finance Minister Mustapha al-Shamali warned in November 2011 that salaries now accounted for 85% of budgeted oil revenues. The central bank governor also resigned after 25 years in the post back in February, claiming that government spending policies were preventing the bank from doing its job. We, too, have concerns about spending, not only from a fiscal sustainability point of view, but also in terms of its impact on the private sector. If public sector wages have to be replicated by the private sector, this could not only hit firms at the margins, it could also drive consumer prices up. Indeed, there is no real sign that higher oil prices and government spending are trickling down to the private sector. Bank credit to non-government borrowers rose just 2.6% over 2011, below the rate of inflation (3.1%). The stock market is up around 7% year to date, but this is a smaller rise than that seen in the UAE and Saudi Arabia. All in all, we see high oil production and prices driving growth this year, while the private sector continues to struggle in a difficult business and political environment.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/KWD (end year) EUR/KWD (end year)
5.2 43.2 52.0 38.2 3.7 12.4 30.4 6.25 0.289 0.382
4.4 34.9 33.6 35.9 7.5 16.2 50.2 6.25 0.273 0.369
4.4 40.0 38.4 42.4 9.0 14.4 41.3 3.75 0.276 0.386
-1.2 22.5 11.2 26.8 2.1 16.2 45.9 3.00 0.287 0.410
3.3 23.2 17.8 30.8 6.0 12.7 41.2 2.50 0.281 0.380
4.2 30.3 20.3 35.2 3.1 11.0 33.3 2.50 0.275 0.391
3.4 32.6 23.7 37.2 4.9 9.6 29.5 2.50 0.275 0.396
3.9 27.6 21.6 32.6 3.8 9.9 29.4 2.50 0.275 0.399
Source: Kuwait Central Bank, Ministry of Finance, Kuwait Central Statistics Office, HSBC estimates and forecasts
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Lebanon
Not like the rest
Lebanon continues to stand apart from the rest of the region: its economy boomed during the global slowdown, and entered a cyclical decline as its neighbours began to recover. As significant protests were mounted all around it in 1Q11, Lebanons own domestic political scene remained stable, and as its neighbours struggle under the weight of political risk, higher oil prices and a downturn in global demand, Lebanon looks relatively resilient. That is not to say that Lebanon has not been hit by the Arab Spring effect. Tourist arrivals were down 16% y-o-y in 2011, construction permits were flat, and the USD2bn balance of payments deficit suggests that limited financial flows were forthcoming to offset the loss in service export revenues and the gaping trade deficit in 2011. However, in spite of all this, Lebanon continues to show relative strength. It is the only oil importer in the region to have increased its reserves in 2011 (by USD2.2bn to USD31bn, or the equivalent of 18.5 months of goods import cover). At the same time, deposits in the banking sector were up USD10bn, and credit in LBP terms rose 24%. In part this reflects relatively high levels of risk tolerance in a country which has been politically unstable for the best part of the last three decades. This confidence continues to translate not only into private consumption, but also into remittances from the Diaspora, which keep the banking system liquid, allowing it in turn to support what remains a precarious public finance position. Indeed, despite some improvement Lebanon is also the only MENA oil importer to have reduced its budget deficit in 2011 public debt is the countrys single biggest structural weakness. Though down on its peak, at just below 140% of GDP, Lebanons debt stock is one of the highest in the world and continues to rise in absolute terms. While a still-confident expat community and stable exchange rate make this manageable for now, it does expose Lebanon to a downturn in risk appetite, particularly in the event of the troubles in Syria spilling over the border. Any international sanctions on Syrian money deposited abroad could also affect the Lebanese banking sector.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/LBP (end year) EUR/LBP (end year)
0.9 -6.7 -13.5 -27.4 5.6 179.9 137.4 12.0 1508 1990
8.1 -5.2 -10.2 -31.4 9.3 167.8 127.1 12.0 1508 2035
9.3 -14.3 -9.7 -37.3 5.5 156.4 112.3 12.0 1508 2111
8.9 -22.7 -8.5 -36.5 3.4 146.4 100.9 10.0 1508 2156
7.1 -21.0 -7.5 -35.7 4.5 135.5 91.1 10.0 1508 2035
1.7 -25.1 -5.2 -37.4 4.0 136.8 89.2 10.0 1508 2141
2.3 -20.9 -5.1 -37.4 3.5 137.4 85.2 10.0 1508 2171
3.9 -15.3 -5.0 -35.8 3.5 135.7 84.3 10.0 1508 2186
Source: Lebanon Central Bank, Ministry of Finance, Lebanon Statistics Department, HSBC estimates and forecasts
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Morocco
Northern Star
Moroccos economy grew by 4.8% in 2011, a remarkably resilient performance given the impact of the Arab Spring, as well as the travails of Moroccos biggest trading partners in Europe. The rate is likely the highest in North Africa for 2011, and reaffirms our positive view on Morocco as a haven of relative political and economic stability in what has recently been an exceptionally troubled region. Indeed, the statement published by the Haut Commissariat au Plan cites real growth of 7% in private consumption: a pace of expansion it attributes to the wage rises announced in 1Q11, as well as a 7% increase in remittances from Moroccans abroad and a 10% increase in consumer credit all of which occurred against a backdrop of just 1% inflation. Exports grew by 8%, while gross fixed capital formation was up 5%. As we have argued before, despite our belief in Moroccos fundamental strengths, it is hard to see this degree of resilience continuing into 2012. On the plus side, the political situation has stabilised there have been no large scale political protests in 2012.
Despite the Islamist Parti de la Justice et Developpement (PJD) taking several key government roles, including that of prime minister, there has been no suggestion of a more conservative social policy which could harm the tourism industry. Instead, Premier Abdelilah Benkirame has said his focus is on reducing unemployment to 8%, by targeting 5.5% annual GDP growth. We, and the central bank, are less optimistic. The central bank cut rates by 25bps on March 27, predicting growth of 2-3%, in line with our own forecast. We are also concerned that strong growth in 2011 has not improved Moroccos unemployment rate, which stood at 9.1% in 3Q11 unchanged from end-2010 (with the rate among females having risen to 11%). Meanwhile, the budget deficit widened to 6.4% of GDP in 2011, and will narrow only slightly in our view to 5.9% in 2012, particularly as high oil prices push up the cost of subsidies. As elsewhere in the region, this is weighing on local banks, and their ability to extend credit to the private sector: claims on the government were up 35% y-o-y in November.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/MAD (end year) EUR/MAD (end year)
7.8 2.2 -1.5 -14.8 3.3 55.1 26.3 3.25 8.46 11.1
3.2 -0.1 0.7 -18.7 2.0 50.5 24.7 3.25 7.71 11.3
6.1 -5.2 0.4 -21.9 4.2 49.4 22.7 3.32 8.10 11.2
4.8 -5.0 -1.1 -18.2 1.5 46.0 21.8 3.31 7.86 11.3
3.7 -5.4 -1.8 -19.5 2.2 55.0 20.4 3.25 8.33 11.1
4.8 -5.1 -6.4 -18.9 3.0 59.1 20.0 3.25 8.59 11.1
2.5 -4.4 -5.9 -18.5 3.0 51.5 19.1 3.00 7.83 11.3
3.8 -4.0 -5.3 -17.9 3.0 55.8 18.1 3.00 7.79 11.3
Source: Morocco Central Bank, Ministry of Economy and Finance, Haut-Commissariat au Plan, HSBC estimates and forecasts
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Oman
Sohar so good
The anniversary of protests in February passed uneventfully in Oman, underscoring the relative success of government pledges to address protesters demands following the unrest with a mixture of economic sweeteners and (mild) political reforms. The Times of Oman in January quoted the minister for financial affairs, Darwish al-Balushi, as saying that the government had created 43,000 of the 50,000 positions it had pledged following the unrest, with further employment growth having taken place in the private sector. Notwithstanding this success, employment remained the theme of the 2012 budget, which aims to create an additional 36,000 new jobs. The blueprint also allows for the reintroduction of a previously shelved training programme for young Omanis. Indeed, 13% of spending is earmarked for education. While this success chimes with our view of Oman as one of the regions outperformers, we are somewhat sceptical as to the sustainability of this level of public sector employment. Government spending rose only 9% in 2011, in spite of the higher levels of employment, but the increase in public sector salaries is likely to show through in the 2012 budget. Private sector indicators, meanwhile, are more mixed. Tourism appears to have performed well, with international arrivals up 18% over the year. However, the governments income from corporate tax and customs duties fell over 2011. Moreover, cargo handled at Oman's two ports rose just 2%. That said, bank lending numbers suggest the private sector could pick up in 2012. Private sector credit rose by 1.4% on average in each of the last six months of 2011, ending the year 13% higher. This should feed through to a stronger private sector growth performance this year. On the external front, Oman remains well placed, particularly with higher oil prices: we see the current account surplus rising to 17% of GDP in 2012, on the back of a near-30% rise in export revenues. This should also allow for a budget surplus of around 13% of GDP, although should the fiscal situation worsen substantially, we would expect GCC aid pledged this time last year to materialise.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/OMR (end year) EUR/OMR (end year)
14.7 15.4 10.8 31.8 4.3 8.0 17.1 6.34 0.385 0.508
-0.3 10.0 8.1 24.7 8.3 6.2 17.5 6.02 0.385 0.562
14.0 8.4 8.7 28.1 11.8 4.1 14.1 1.97 0.385 0.538
4.3 -0.7 -4.6 24.6 0.9 5.5 16.8 2.00 0.385 0.551
4.7 11.0 3.2 29.4 4.2 5.4 13.7 2.00 0.385 0.515
4.2 13.4 9.7 30.9 3.3 3.7 11.4 2.00 0.385 0.546
4.6 16.9 12.5 33.6 4.2 3.2 10.4 2.00 0.385 0.554
4.2 9.0 6.8 25.3 4.9 3.2 10.6 2.00 0.385 0.558
Source: Oman Central Bank, Ministry of Finance, Ministry of National Economy, HSBC estimates and forecasts
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Pakistan
The oil factor
The political situation has stabilised somewhat since our last quarterly, with the ruling Pakistan Peoples Party (PPP) having survived a no confidence vote in parliament, and strengthened its position in Senate elections. There remains a risk of early elections parliamentary and presidential polls are not due until February and September 2013, respectively but all in all the political scene looks calmer than it did three months ago. However, we do not share President Asif Ali Zardaris optimism that GDP growth will rise to 4% in 2012/13: indeed, we have nudged down our forecast somewhat to 2.7%, on the back of higher oil prices which could hit Pakistans trade balance, public finances, inflation and, in turn, banking sector liquidity. The deteriorating external position was already apparent in January 2012, with strong import growth (at 17% y-o-y) exacerbated by a 3% decline in exports. In calendar 2011, meanwhile, FDI came in at USD1.3bn its lowest level since 2004 and an insufficient amount to fund a USD2.1bn current account deficit. With little to suggest an improvement in either trade or investment flows, we therefore see further contraction in foreign exchange reserves, (already down USD1.7bn, or just short of 12% from their June 2011 peak) to less than five months of import cover this fiscal year. We also see the rupee depreciating to PKR95/USD by end-2012. Furthermore, higher oil prices will weigh on public finances, adding to the burden of subsidising fuel and other goods, particularly given the political climate and Pakistans chronic energy shortages. This, in turn, has implications for the already strained banking sector, which has seen its claims on the public sector rise 70% since January 2010 (during which time private sector credit was contracting in real terms). The State Bank of Pakistan has been on hand to provide significantly higher than usual levels of liquidity into the sector, and retains a dovish bias, in our view. However, with oil prices at current levels, inflation will remain too high for comfort, staying in the double digits throughout 2012.
Key data and forecasts 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12f 2012/13f
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/PKR (end year) EUR/PKR (end year)
6.2 -4.2 -4.2 -7.1 8.9 56.4 28.5 9.0 60.2 71.3
5.7 -5.1 -5.9 -7.2 8.8 54.4 27.4 9.5 60.5 79.9
2.0 -8.8 -7.9 -9.5 23.3 50.2 25.5 12.0 68.0 91.8
3.2 -5.7 -5.1 -7.8 10.5 52.5 28.6 14.0 81.4 114.0
4.4 -2.0 -6.5 -6.5 15.5 53.7 29.7 12.5 84.6 120.9
2.1 0.3 -6.1 -4.9 12.5 50.9 27.0 13.5 89.7 121.1
2.9 -1.2 -5.2 -6.1 13.1 52.6 27.8 12.0 93.0 132.1
2.7 -0.9 -4.4 -5.8 12.6 55.1 29.2 12.0 95.0 136.8
Source: Pakistan Central Bank, Ministry of Finance, HSBC estimates and forecasts. NB. Pakistan fiscal 2011/12= Calendar 2012
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Qatar
Going domestic
Despite a slowdown in the headline rate, we continue to see robust and increasingly broadbased growth for Qatar in 2012, as LNG exportdriven growth drops off and the focus turns to domestic demand. As of 3Q11, this more broad-based growth was not yet showing through in the numbers: construction GDP, for example, was up just 0.7% y-o-y in nominal terms. However, strong credit extension is paving the way for a better domestic picture in 2012. Although this was led by the public sector (to which credit was up 58% y-o-y in February 2012), private sector credit growth was also up by a robust 17%. Qatar is also making progress on its bid to build up a domestic debt market. Although the government is clearly not short of cash we expect a budget surplus of 10% of GDP this fiscal year and next the authorities have been increasing debt issuance substantially. Within the commercial banks claims on government umbrella, credit was flat y-o-y in January 2012, while financial securities were up 16%. These securities now stand at USD28bn, or 14% of GDP (from USD7.8bn in January 2010). T-bill issuance is also growing fast, although from a lower base: the amount outstanding is now USD3.3bn. Considering that number was zero as recently as May 2011, this is a clear indication of a drive to develop a liquid local debt market. This will be positive for corporate financing as the infrastructure build-out gathers pace over the coming decade. However, there is no sign that the financial reforms necessary for Qatar to be upgraded to MSCI emerging markets status will materialise before June, the next review date. We expect a broadly expansionary budget in May (having been delayed from its usual March announcement date), although the lack of domestic political risk and recent pay rise announcements may curb current spending growth in 2012. With oil prices well into the triple digits, the government is unlikely to tap international markets again in the short to medium term.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/QAR (end year) EUR/QAR (end year)
9.6 16.7 7.2 31.0 12.0 13.3 46.3 5.15 3.64 4.79
11.5 12.7 7.3 26.1 13.7 9.3 58.8 4.00 3.64 5.36
15.2 13.8 8.7 24.9 13.2 13.4 49.5 2.00 3.64 5.07
10.1 6.8 11.7 23.9 -5.6 14.5 85.7 1.50 3.64 5.31
14.3 16.4 11.6 39.8 0.4 11.1 80.8 1.50 3.64 4.86
15.2 28.8 2.1 50.9 2.3 7.8 60.3 0.75 3.64 5.17
6.4 28.7 10.5 51.5 3.8 9.2 58.1 0.75 3.64 5.24
5.8 22.0 10.3 46.9 4.7 9.9 59.8 0.75 3.64 5.28
Source: Qatar Central Bank, Ministry of Finance, Qatar Statistics Authority, HSBC estimates and forecasts
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Saudi Arabia
Powering on
Despite the deepening geopolitical tensions on its borders, our longstanding optimism over Saudi Arabias near-term outlook has firmed over recent months. Indeed, we have raised our growth forecasts for this year by a full percentage point, as well as lifting what were already elevated projections for the kingdoms fiscal and current account outlooks. To a degree, the buoyant outlook represents the arithmetic of the oil market, rather than shifts in the economy of the Kingdom itself. Oil production volumes look likely to stay higher for longer than we had previously assumed and prices have also exceeded expectations. This combination of higher volumes and higher prices is likely to lift Saudi oil export earnings to over USD300bn this year a new, all time high. More significantly, the data suggest that the increases in spending the government pledged on the back of high oil prices is not only being delivered, but is also making its impact felt in the broader economy. 4Q11 GDP data, for example, showed a clear shift in growth drivers from the oil to the nonoil sector, and the partial displacement of public consumption with private sector demand. Encouragingly, there is also evidence that credit growth has continued to build momentum after more than two years of stagnation. This is both creating a more effective multiplier for additional government spending and offsetting more difficult access to international funding. With reserves likely to exceed USD600bn (93% of GDP) by the end of the year, Saudi Arabia also looks well placed to weather any further escalation in regional instability or an unexpected sharp fall in oil prices. Inflation has not yet picked up pace. Longer-term challenges, however, remain pronounced. The growth rates we project over the coming two years will likely only hold high levels of youth unemployment flat, at best, given the rapid growth in the adult population. Despite its talk of diversification, the pivotal role played by public spending means that the kingdoms reliance on its oil sector is more intense than it has ever been. Latent concerns over domestic political order, and more immediate worries over regional conflict and unrest will also likely continue to impede access to long-term private capital.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/SAR (end year) EUR/SAR (end year)
3.2 27.9 21.0 41.5 2.0 27.3 15.5 4.70 3.75 4.94
2.0 24.5 12.2 39.4 6.7 18.5 23.2 4.00 3.75 5.51
4.2 27.9 32.5 44.6 9.0 13.2 20.2 1.50 3.75 5.22
0.1 6.2 -6.1 28.0 4.2 15.9 26.5 0.25 3.75 5.40
4.1 15.7 6.5 33.3 5.4 9.9 23.2 0.25 3.75 5.06
6.6 27.3 13.9 43.1 5.3 7.4 18.2 0.25 3.75 5.32
4.0 26.9 11.6 43.4 4.8 6.4 17.2 0.25 3.75 5.39
3.9 17.5 5.2 36.4 5.5 6.3 18.4 0.25 3.75 5.43
Source: Saudi Arabia Monetary Agency, Central Department of Statistics and Information (CDSI), HSBC estimates and forecasts
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Tunisia
One step ahead
As international attention focuses on Egypts post-revolution rebuilding process, Tunisia continues to make quiet progress of its own. As with Egypt, democracy has brought a much greater demand for Islamist politics to the fore: Tunisia has seen large scale rallies calling for an Islamic state to be enshrined in the constitution, as well as (generally smaller) counter-protests insisting on secularism. In March, the biggest political party in the constituent assembly (the Islamist Ennahda) said that the role of religion in the new constitution would be unchanged from the last one: Islam remains the religion of the state, but sharia will not be named as a primary source of law. The party has also said it has no desire to ban alcohol. Although the political process is not complete, Tunisia does have an elected parliament, government and president, and is further down the road of rewriting its constitution than Egypt. This and Ennahdas assurances on the role of religion should pave the way for a normalisation of investment flows and economic activity. The government is aiming for 3.5% growth this year, in line with our own forecast. This is not to say it will be easy. Tourism has improved, but remains volatile: arrivals were up 1% y-o-y in November 2011, but down 22% in December. The economy as a whole shrank by 1.8% in 2011, and unemployment shot up 5 percentage points to 18% (according to Reuters). This will weigh on private consumption in 2012. Meanwhile, both private sector lending and deposit growth have slowed reducing the banking sectors ability to power growth. The government is no better placed: we estimate that the budget deficit widened to USD2.2bn (5.3% of GDP) in 2011.While this, and the USD1.7bn current account deficit are much more manageable in absolute terms than those Egypt is struggling with, it would still be reassuring to see some of the promised aid start to flow. In the meantime, Tunisias banks appear to be taking the hit, with claims on the government up 22% y-o-y in November.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/TND (end year) EUR/TND (end year)
5.5 6.2 -6.6 -7.3 3.0 48.6 52.8 5.3 1.30 1.71
6.3 1.9 -2.5 -7.4 5.1 45.8 49.3 5.3 1.22 1.78
4.5 3.7 -1.1 -9.0 4.1 43.6 48.8 5.3 1.31 1.83
3.1 3.8 -2.9 -8.5 4.1 43.0 48.2 4.5 1.31 1.91
3.8 -0.4 -1.4 -10.4 4.0 41.5 46.0 4.5 1.44 1.91
-1.8 -4.2 -5.3 -17.7 4.2 47.2 49.1 3.5 1.50 1.94
3.5 -5.1 -5.6 -20.0 3.3 47.6 50.7 3.5 1.35 1.94
4.7 -2.9 -5.9 -19.6 4.5 49.9 52.0 3.5 1.34 1.94
Source: Tunisia Central Bank, Ministry of Finance, National Bureau of Statistics, HSBC estimates and forecasts
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United Arab Emirates

Middle ranking Middle East
Despite elevated political tensions in the Gulf, the UAE economy continues to perform relatively well. In Dubai, the export-orientated service sector is showing significant growth, with airport throughput hitting a new high in early 2012, for example, and retailers reporting strong tourist demand. Improved global risk appetite has also offered support as fears over Dubais capacity to manage its short-term debt liabilities have moderated. Adding to the pick-up in sentiment, property prices have also shown more convincing signs of having found a floor. In Abu Dhabi, meanwhile, the long run of threedigit oil pries continues to push export receipts and fiscal revenues to new highs. As well as allowing Abu Dhabi to add to its already substantial stock of foreign assets, the rise in revenues may help explain 1Q12 announcements that signalled the government was preparing to recommence work on public infrastructure and housing projects that seemed to have stalled. Yet while this suggests that the UAE has momentum, the limits on activity are also clear. Bank lending, for example, remains weak, with the banking sector in aggregate extending no new credit in 2011 for a third consecutive year. With rates still standing well above those of fellow dollar-pegged economies in the region, provisioning still rising and liquidity growth weak, we do not expect to see a material recovery this year. Moreover, even if refinancing of existing external debt proceeds relatively smoothly, access to new funding will likely remain difficult. The labour market also appears soft and rents continue to trend down, suggesting the UAE real estate market as a whole still faces pressure. Notwithstanding recent commitments, we also continue to anticipate a fiscal stimulus significantly less pronounced than in neighbouring Saudi Arabia and Qatar. This is particularly true in Dubai, where the budget was cut once again for 2012, but also in Abu Dhabi, which appears content to pursue its long-term development goals less aggressively than it suggested it might just a few years ago.
GDP (% y-o-y) Current account (% GDP) Budget Balance (% GDP) Trade Balance (% GDP) CPI (% end year) Public Debt (% GDP) External debt (% GDP) Policy rate (% end year) USD/AED (end year) EUR/AED (end year)
9.9 16.2 21.0 25.9 10.5 11.7 41.9 4.75 3.67 4.85
3.2 7.6 17.3 18.0 11.1 13.2 57.7 4.25 3.67 4.96
3.3 7.1 17.0 20.0 6.5 13.8 50.7 1.50 3.67 5.14
-1.6 2.9 -10.6 15.6 -0.4 21.1 60.8 1.00 3.67 5.25
5.3 5.0 2.3 18.7 1.8 23.1 56.7 1.00 3.67 4.96
4.1 12.8 11.6 27.8 1.5 21.9 55.0 1.00 3.67 5.22
2.6 13.8 12.2 29.6 1.7 21.3 53.4 1.00 3.67 5.29
3.3 9.4 7.6 26.2 2.2 21.3 57.2 1.00 3.67 5.33
Source: UAE Central Bank, Ministry of Finance, National Bureau of Statistics, HSBC estimates and forecasts
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Notes
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Notes
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Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Simon Williams and Elizabeth Martins
Important Disclosures
This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not for publication to other persons, whether through the press or by other means. This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Advice in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice. Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products. The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results. Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. * HSBC Legal Entities are listed in the Disclaimer below.
Additional disclosures
1 2 3 This report is dated as at 03 April 2012. All market data included in this report are dated as at close 27 March 2012, unless otherwise indicated in the report. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
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Disclaimer
* Legal entities as at 04 March 2011 Issuer of report UAE HSBC Bank Middle East Limited, Dubai; HK The Hongkong and Shanghai Banking Corporation Limited, HSBC Bank Middle East Ltd Hong Kong; TW HSBC Securities (Taiwan) Corporation Limited; CA HSBC Securities (Canada) Inc, Toronto; PO Box 502601 HSBC Bank, Paris Branch; HSBC France; DE HSBC Trinkaus & Burkhardt AG, Dsseldorf; 000 HSBC Bank (RR), Dubai UAE Moscow; IN HSBC Securities and Capital Markets (India) Private Limited, Mumbai; JP HSBC Securities (Japan) Limited, Tokyo; EG HSBC Securities Egypt SAE, Cairo; CN HSBC Investment Bank Asia Limited, Beijing Telephone: +971 4 3904722 Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong Fax: +971 4 4267397 and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Website: www.research.hsbc.com Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; GR HSBC Securities SA, Athens; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; US HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC Mxico, SA, Institucin de Banca Mltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA Banco Mltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch In the UAE this document has been issued and approved by HSBC Bank Middle East Ltd. (HBME) for the information of its Customers and those of its affiliates only. If this research is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report. In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in the UK. 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HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the report are based upon publicly available information at the time of publication and are subject to change without notice. Nothing herein excludes or restricts any duty or liability to a customer which HSBC has under the Financial Services and Markets Act 2000 or under the Rules of FSA. A recipient who chooses to deal with any person who is not a representative of HSBC in the UK will not enjoy the protections afforded by the UK regulatory regime. Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. HSBC Bank Middle East Ltd. is registered in Jersey, Channel Islands, is authorised and regulated by the Jersey Financial Services Commission. Copyright. HSBC Bank Middle East Ltd. 2012, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank Middle East Ltd. MICA (P) 208/04/2011, MICA (P) 040/04/2011 and MICA (P) 206/01/2012
[325611]
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Global Economics Research Team

Global
Stephen King Global Head of Economics +44 20 7991 6700 stephen.king@hsbcib.com Karen Ward Senior Global Economist +44 20 7991 3692 karen.ward@hsbcib.com Madhur Jha +44 20 7991 6755 madhur.jha@hsbcib.com
Global Emerging Markets

Pablo Goldberg Head of Global EM Research +1 212 525 8729 pablo.a.goldberg@hsbc.com Bertrand Delgado EM Strategist +1 212 525 0745
bertrand.j.delgado@us.hsbc.com
Emerging Europe and Sub-Saharan Africa

Murat Ulgen Chief Economist +44 20 7991 6782 Agata Urbanska +44 20 7992 2774
Europe & United Kingdom

Janet Henry Chief European Economist +44 20 7991 6711 janet.henry@hsbcib.com Simon Wells Chief UK Economist +44 20 7991 6718 simon.wells@hsbcib.com Astrid Schilo +44 20 7991 6708 Germany Lothar Hessler +49 21 1910 2906 France Mathilde Lemoine +33 1 4070 3266 astrid.schilo@hsbcib.com
muratulgen@hsbc.com agata.urbanska@hsbcib.com
Alexander Morozov +7 495 783 8855 alexander.morozov@hsbc.com Melis Metiner +90 212 376 4618 melismetiner@hsbc.com.tr
Middle East and North Africa

Simon Williams Chief Economist +971 4 423 6925 Liz Martins Senior Economist +971 4 423 6928
lothar.hessler@hsbc.de
simon.williams@hsbc.com
mathilde.lemoine@hsbc.fr
liz.martins@hsbc.com
North America
Kevin Logan Chief US Economist +1 212 525 3195 kevin.r.logan@us.hsbc.com Ryan Wang +1 212 525 3181 ryan.wang@us.hsbc.com
Latin America
Andre Loes Chief Economist, Latin America +55 11 3371 8184 andre.a.loes@hsbc.com.br Argentina Javier Finkman Chief Economist, South America ex-Brazil +54 11 4344 8144 javier.finkman@hsbc.com.ar Ramiro D Blazquez Senior Economist +54 11 4348 5759 Jorge Morgenstern Senior Economist +54 11 4130 9229 Brazil Constantin Jancso Senior Economist +55 11 3371 8183 Mexico Sergio Martin Chief Economist +52 55 5721 2164 Claudia Navarrete Economist +52 55 5721 2422 Central America Lorena Dominguez Economist +52 55 5721 2172
Asia Pacific
Qu Hongbin Managing Director, Co-head Asian Economics Research and Chief Economist Greater China +852 2822 2025 hongbinqu@hsbc.com.hk Frederic Neumann Managing Director, Co-head Asian Economics Research +852 2822 4556 fredericneumann@hsbc.com.hk Leif Eskesen Chief Economist, India & ASEAN +65 6239 0840 leifeskesen@hsbc.com.sg Paul Bloxham Chief Economist, Australia and New Zealand +61 2925 52635 paulbloxham@hsbc.com.au Donna Kwok +852 2996 6621 Trinh Nguyen +852 2822 6975 Ronald Man +852 2996 6743 Luke Hartigan +612 9255 2635 Sun Junwei +86 10 5999 8234 Sophia Ma +86 10 5999 8232 donnahjkwok@hsbc.com.hk trinhdnguyen@hsbc.com.hk ronaldman@hsbc.com.hk lukehartigan@hsbc.com.au junweisun@hsbc.com.cn xiaopingma@hsbc.com.cn
ramiro.blazquez@hsbc.com.ar
jorge.morgenstern@hsbc.com.ar
constantin.c.jancso@hsbc.com.br
sergio.martinm@hsbc.com.mx
claudia.navarrete@hsbc.com.mx
lorena.dominguez@hsbc.com.mx
Principal contributors
Simon Williams HSBC MENA Chief Economist HSBC Bank (Middle East) Limited, Dubai +9714 423 6925 simon.williams@hsbc.com Simon Williams is HSBCs Chief Economist for the Gulf. Based in Dubai, Simon joined HSBC in 2006 and has more than a decades experience as a Middle East economic analyst.
Elizabeth Martins Senior Economist HSBC Bank (Middle East) Limited, Dubai +9714 423 6928 liz.martins@hsbc.com Liz Martins joined HSBC as a senior economist in 2010, having headed the Middle East and North Africa team for a leading independent research provider since 2006. Alongside Chief Economist Simon Williams, she helps formulate HSBCs macro view of the Middle East and North Africa region for equity, xed income and FX clients across the globe. She holds Bachelors and Masters degrees from Cambridge University.

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Macro Middle East Economics Q2 2012