The Middle East and North Africa (MENA) region is the only one to maintain its improving outlook for the sovereign sector, which was assigned at the end of 2021, ratings agency Fitch said. 

Oil-exporting sovereigns in the region will register significantly stronger public finances and growth in 2022, although the economic picture will be much more challenging outside the GCC region, the agency said in an update on its revised sovereign sector outlook. 

The sovereign sector in the MENA region is supported at varying degrees by reform momentum, as well as by more constructive regional political dynamics that emerged last year, the update said. 

Globally, Fitch said there is a deterioration in sovereign credit conditions this year relative to expectations at the end of 2021, leading the global outlook to be revised to neutral from improving. 

The impact of the Ukraine war and consequent sanctions with geopolitical risk on trade and capital flows, and economic growth and inflation will not be resolved in the second half of 2022, the update said.  

“Policy responses are driving the fiscal effects of inflation, making post-COVID-19 pandemic consolidation that was evident last year less certain.” 

“Meanwhile the Federal Reserve and most other major central banks will tighten policy much more aggressively than anticipated, adding to funding stresses for emerging markets (EMs) with limited local-currency financing options. 

“Commodity exporters are benefiting from high prices, but EMs that are net commodity importers face high gross external funding needs.” 

Emerging Europe and sub-Saharan Africa maintain deteriorating sovereign sector outlooks. In western Europe, weaker GDP growth will slow, but not reverse fiscal consolidation, while Asia-Pacific economies continue to recover, albeit more slowly, the outlook said. 

Outlooks for Greater China sector outlook North America and Latin America are also unchanged and remain neutral. 

(Reporting by Imogen Lillywhite; editing by Cleofe Maceda)