Moody's dials down growth estimates for Levant and North Africa

High debt levels will constrain the region's capacity to absorb future shocks

  
A Moody's sign on the 7 World Trade Center tower is photographed in New York. Image used for illustrative purpose

A Moody's sign on the 7 World Trade Center tower is photographed in New York. Image used for illustrative purpose

REUTERS/Mike Segar

Moody's Investor Service expects 2.9 percent growth across the Levant and North Africa region in 2022, down from estimated 3.4 percent growth in 2021.

The outlook for sovereign creditworthiness in the Levant and North Africa region is negative over the next 12-18 months due to a weak economic recovery and growing social discontent, the ratings agency said in a note on Tuesday.

"A subdued and uneven economic recovery across the Levant and North Africa region, entrenched governance challenges and heightened social pressures will delay economic reform efforts and constrain policy flexibility," Mickaël Gondrand, an analyst at Moody's, said in the report.

"Governments will struggle to maintain post-crisis fiscal discipline while confronting long-standing socioeconomic demands; and in turn, slow progress on fiscal consolidation will leave sovereigns vulnerable to tighter external and domestic financing conditions."

High debt levels will constrain the region's capacity to absorb future shocks and leave sovereigns vulnerable to potential shifts in global financing conditions. Growing contingent liability risks from the state-owned enterprise sector are another key vulnerability.

Any hope of a stronger rebound in economic activity will be inhibited by limited scope for fiscal policy to support growth, the slow resumption of global tourism and lingering pandemic risks as vaccine access remains limited and uneven, it said.

"The weak pace of recovery will exacerbate social fragilities – including the long-standing challenges of high youth unemployment and elevated economic informality – and weigh on debt dynamics, limiting the ability of the region's sovereigns to stabilise debt burdens and rebuild fiscal space."

(Writing by Brinda Darasha; editing by Seban Scaria) 

brinda.darasha@refinitiv.com

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