Lingering pandemic woes hamper MENA recovery: S&P report

Much like the global economy, the six countries in the Middle East and North Africa (MENA) region found that the Covid-19 pandemic had a significant negative impact across their economies. These countries' greater reliance on energy exports and travel and tourism meant last year's regional economic loss closely tracked the world composite.

In a new report titled "MENA Sovereigns, Corporates, And Banks Enter A New Chapter As COVID-19 Concerns Linger," the ratings agency found that despite regional growth rebounding in the third-quarter 2020, what had initially seemed like a sharp recovery path was thwarted by subsequent virus waves.

The pace of rebound is insufficient to bring these economies back to their pre-pandemic GDP trajectories by 2024.

Key differences across the six countries profiled are likely to affect their distinct economic recovery.

Hydrocarbon endowments are a key differential between Gulf Cooperation Council (GCC) and North African sovereigns. Weak fiscal positions continue to weigh on North African countries, while GCC sovereign's accumulation of high levels of government assets support both their fiscal and external positions.

External imbalances remain a concern for Egypt. Meanwhile, Qatar's sizeable external financing needs reflect the funding profile of its banking sector.

Governments have, to a large extent, provided stability; however, political institutions are still developing and decision-making processes lack transparency and remain centralized.

S&P Ratings said it expected to see gradual recovery across most industries in the MENA-6, but that corporates remain cautious.

"We expect continued pressures in some corporate sectors, particularly tourism, and aviation, with a gradual recovery in certain real estate segments. Stronger oil prices are a key catalyst for the GCC region. Improving price trends are supportive for operating conditions in most segments of the larger oil, gas, and commodities sectors--including contract renewals in oil field services," the report stated.

The report highlighted that most MENA banks had remained resilient despite the pandemic's economic shock. It expects credit losses to peak across most of the region in 2021 and gradually trend down to historical values over 2022.

Possible drags on the region include a sluggish economic recovery due to higher tourism dependance in Egypt and Morocco and intensifying political unrest in Tunisia. GCC banks' performance should improve as higher oil prices support local economies.