Non-resident capital inflows to the Middle East and North Africa (Mena) region are projected to rise by 21 per cent from $165 billion (Dh605.55 billion) last year to $200 billion (Dh734 billion) this year, as nearly two-thirds of additional inflows in 2019 are associated with Saudi Arabia's MSCI EM Index upgrade, the Institute of International Finance (IIF) said.

Portfolio investments, supported by equity index inclusions and debt issuance, remain the key driver of capital inflows to the region, it said in a note released on Monday.

"Unlike in other emerging markets where capital flows dynamics have been significantly affected by global monetary easing and trade tensions, the main driving factor behind this year's foreign capital inflows to Mena has been global benchmark index upgrades in the GCC," said Garbis Iradian, chief economist for Mena at IIF.

However, the think-tank sees capital inflows tapering off next year to $173 billion (Dh634.9 billion). Foreign inflows to Mena oil exporters will increase significantly from $115 billion in 2018 to $157 billion this year and tapering off to $133 billion next year. In contrast to oil exporters, non-resident capital flows to Mena oil importers are projected to decline from $50 billion last year to $43 billion in 2019 and $40 billion in 2020, IIF analysts said.

"Most notably, we are projecting inflows to Saudi Arabia to rise to a record $57 billion this year, as investors have increased exposure to Saudi Arabia's equities as a result of the MSCI EM equity index inclusion," Iradian said in the note released on Monday.

"Going forward, we expect equity inflows to dissipate somewhat but remain sizable. From the perspective of debt flows, declining interest rates and large fiscal financing needs in the context of lower oil prices will keep Eurobond issuance at high levels," he added.

 

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