l Global Research l

Standard Chartered Middle East and North Africa Focus | 03 July 2013

Realities and challenges
Contents
Global overview: Fundamentals vs. liquidity p. 2 Regional overview: Realities and challenges p. 6 Economy insights: Bahrain: A fiscal challenge p. 8 Egypt: Reform pushed back p. 10 Iraq: Political uncertainties p. 12 Jordan: Targeting a USD 2bn eurobond p. 14 Kuwait: Non-hydrocarbon-driven growth p. 16 Lebanon: Protracted confidence slump p. 18

Highlights
 Markets are worried about tightening signals in the US and the effective

Oman: Oil to fuel spending p. 20 Pakistan: New government targets 7% growth p. 22 Qatar: New growth drivers p. 24 Saudi Arabia: Managing the boom p. 26 UAE: Robust and broad-based growth p. 28 Forecasts and references p. 30

tightening impact of policy in China. EM credit has sold off on the back of concern about the potential reduction of liquidity. While GCC credits are defensive choices in times of market volatility, the highly rated nature of the market means the space will underperform Asia as UST yields rise.
 The MSCI upgrades of UAE and Qatar to EM Index status is a significant

milestone for GCC markets. Higher foreign investment flows will boost markets but policy makers still need to accelerate reforms to develop the local markets to take full advantage of the upgrades.
 GCC states, led by Saudi Arabia, UAE and Qatar, are spending large sums

on infrastructure projects to diversify away from hydrocarbons. These are the key growth drivers.
 Egypt‟s political roadmap is uncertain; economic reform has been pushed

back amid political turbulence and the economy is set to remain weak. Smooth political transition in Pakistan has improved market sentiment.
 In terms of positioning, we are Overweight Dubai Inc. across the sovereign,

quasi-sovereign and financial sectors. We remain Underweight Qatar, where the sovereign and quasi-sovereign bonds have a small spread cushion. We are Neutral Abu Dhabi financials and quasi-sovereign names. We are Overweight Saudi and Kuwaiti credits and Neutral Bahraini credits.

Important disclosures can be found in the Disclosures Appendix
All rights reserved. Standard Chartered Bank 2013 research.standardchartered.com

Standard Chartered Middle East and North Africa Focus

Global overview – Fundamentals vs. liquidity
Marios Maratheftis, +971 4 508 3311
Marios.Maratheftis@sc.com

China’s focus on sustainable growth is right
Markets have taken a double hit from worries over tightening signals in the US and the effective tightening impact of policy in China. There is an irony in the sell-off in emerging markets. First, the Fed‟s intention to start paring back its quantitative easing (QE) programme suggests that it thinks the US economy is finally showing enough strength to cope with such change. We think that the decision to reduce QE in the current environment looks premature, which could prompt the Fed to delay its tapering of QE by a few months. In Europe, the introduction of the Outright Monetary Transactions (OMT) last year reduced tail risks significantly. The beauty of the OMT can be found in its credibility, it has been successful without spending a single euro to support sovereign bonds in the periphery. The concern right now is that the legitimacy, and therefore the credibility of the OMT are being assessed and questioned by the constitutional court in Germany. China‟s policy makers are clearly committed towards rebalancing their economy. Growth in China will likely stay in a 7-8% range. This is indeed lower than the past. But it is far more sustainable. And it is worth reminding ourselves that an economy that grows by 7% a year can still end up doubling in size in a decade. Right now, portfolios are being adjusted to take into account potential changes in global liquidity and China‟s rebalancing. In this environment, emerging-market (EM) assets have underperformed relative to the US. But markets will eventually have to be driven by fundamentals rather than liquidity and sentiment alone. It is imperative to look at the fundamentals underpinning markets in order to separate the „signal‟ from the „noise‟. In our view, China‟s commitment to growth sustainability rather than growth at any cost will ultimately improve the relative attractiveness of the East versus the West over the medium term.

Fed tapering should be driven by data, not forecasts
US QE is helping to mitigate the effects of still contractionary fiscal policy In the US, the Fed‟s low interest rate policy and QE have mitigated, but not eliminated, the impact of ongoing fiscal tightening. The economy has absorbed this year‟s fiscal pressure (the January tax hikes and federal spending cuts) with surprising resilience. Interest rate-sensitive sectors are driving the US recovery: momentum in the housing market continues unabated. QE‟s success is also attributable to the health of the US banking system, particularly compared to Europe. Federal Reserve Chairman Ben Bernanke has indicated that downside risks to the outlook have diminished, and it is now time to take the foot off the QE pedal. After hinting at QE tapering in his 22 May Congressional testimony, Bernanke confirmed at the June FOMC meeting that it should start “later this year” if the economy continued on the current trend. Bernanke expects the QE policy to end by mid-2014. By that time, unemployment should have fallen to 7%, a threshold the Fed has set for closing the door on this “unconventional policy”. This compares with unemployment of 7.6% currently and 10.0% at its peak in October 2009. But the unemployment rate is not necessarily a good indicator of the true state of the underlying labour market, as it is heavily influenced by swings in the labour-force participation rate (LFPR).

03 July 2013

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Standard Chartered Middle East and North Africa Focus

The LFPR is determined by both structural factors (e.g., demographics and population ageing) and cyclical factors (e.g., withdrawal from the labour force). If the LFPR remained at its current level of 63.4% and monthly non-farm payrolls stayed at around 155,000 (the current three-month average), the unemployment rate would reach the Fed‟s 7% target by Q3-2014, later than the Fed‟s current forecast of mid-2014. In this environment, we think it will be difficult for US growth to be much more than 2% this year QE is unconventional by nature, and exiting from it is a risky process. Communication and timing are key. There are broadly two risks: (1) that the Fed exits too late, with inflation expectations running out of control and/or asset bubbles inflating; or (2) that it exits too rapidly, with a risk of jeopardising the recovery. We think the Fed‟s QE reduction calendar looks ambitious, although not impossible. We see four reasons why the Fed should wait more before reducing its purchases. First, the economy still looks fragile, and the Fed‟s own forecasts are probably too optimistic. This is not necessarily new – since the beginning of the recession, the Fed has continuously overstated the strength of the recovery. GDP growth has averaged only 2.1% since the crisis trough. Second, the unemployment rate can flatter the true picture of the US labour market due to lower participation rates. Even though unemployment declined to 7.6% in May 2013 from a peak of 10.0% in October 2009, there are still 2.4mn fewer Americans in employment than in 2008, and the working-age population has increased by 10mn people. There is still considerable slack in the labour market. Risks of a US government shutdown still loom in Q4-2013 Third, fiscal policy is tighter this year, and we have probably not seen the full impact of this. Consumption held up well in H1-2013 as rising asset prices boosted consumer confidence and consumers dipped into their savings. But the fiscal drag remains a headwind, and it could act with a lag. Political uncertainty could also increase after the summer, when there are a number of important deadlines – including the October deadline for increasing the debt ceiling, and the 1 October deadline for approving a new funding bill (barring a federal budget) to avoid a government shutdown. In the current political environment, one should not be overly optimistic about a smooth agreement between the Democrats and the Republicans: continued political brinkmanship could affect business confidence.

Figure 1: The US labour market remains weak Employment to population ratio, %
65 64 63 62 61 60 59 58 57 56 May-75 May-81 May-87 May-93 May-99 May-05 May-11

Figure 2: A confident Bernanke has pushed up yields Selected Treasury and mortgage interest rates, %
6 5 4 3 2 1 0 Jul-09 2Y Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 10Y 30Y mortgage rate

Sources: Bloomberg, Standard Chartered Research
03 July 2013

Sources: Bloomberg, Standard Chartered Research
3

but more sustainable. the current market consensus.05%) was the lowest since the series began in the 1960s. The transition is happening. April‟s core PCE inflation (1. more long-term issues such as promoting urbanisation. Figure 3: US and China M2 growth and world equity market 450 400 350 300 250 200 150 100 50 0 Jan-97 Jan-00 Jan-03 5% US M2 growth (RHS) 0% Jan-06 Jan-09 Jan-12 Sources: Bloomberg. and there are no signs that inflationary pressures will pick up anytime soon. it is worth highlighting that inflation is on a continued downtrend. but in early 2014 rather than this September. They are sending a message of prudence to lenders that they must review their funding and their risk management. This creates room to wait longer before reducing QE. We have found that for every USD 10bn increase in US M1. The signal from China‟s policy makers is that they are more willing than had been expected to tolerate short-term pain for long-term gain. Policy makers have now set a 7% medium-term yearly GDP growth target. Unless there is a significant deterioration in growth. and upgrading social services such as education and health care. and the repercussions of slower credit growth for GDP growth.4bn (On the Ground. This comes in the broader context of China‟s rebalancing. This is good news. Recent developments in China‟s banking system. China‟s policy makers have indicated their determination to keep interbank liquidity relatively tight as a way to rein in excessive credit growth. they are likely to focus on broader. global M2 increases by USD 24. Economic reform. and the reaction of the People‟s Bank of China (PBoC). have also received a lot of attention. Standard Chartered Research 03 July 2013 4 World equity index 35% 30% 25% 20% 15% China M2 growth (RHS) 10% .Standard Chartered Middle East and North Africa Focus Finally. The authorities want to move from the „old model‟ driven by cheap credit and plentiful investment to a new model that will bring lower. even if it does lead to some short-term pain. Our view is that the Fed will still taper in a few months‟ time. 25 June 2013. and control developments in the „shadow banking‟ system. Consumption and services will play an increasingly important role. rather than economic stimulus. The sharp market reaction to Bernanke‟s signals about QE reduction raises a critical question: what impact will the Fed‟s tapering of bond purchases have on global monetary and financial conditions? The US is by far the most significant driver of global liquidity. Markets are concerned about the potential side effects. ‘Global monetary conditions – US versus China’) China’s authorities are determined to rebalance the economy Policy makers in China are more willing than expected to tolerate short-term pain for long-term gain The Fed is not the only central bank in the spotlight. is the focus in Beijing today. rates of growth. fostering a level playing field for the private sector. This is compounding fears about the de-facto monetary tightening from the Fed.

The constitutionality of the OMT is also now being assessed by the German constitutional court. Spanish yields jumped above 5%. There are still no pro-growth measures in the euro area. Any weakness in growth over the summer. We could not agree more. to a lesser degree. Portugal and. Unfortunately. The OMT pulled the euro back from the brink of collapse and bought the euro area some time. An increase in yields is itself a macroeconomic headwind. In the wake of the June FOMC meeting. Ireland are increasing pressure on the ECB to be accepted as the first OMT candidates. politicians are still at loggerheads over the next steps for banking union and other policies to increase regional integration. But the Damo cles sword of the German constitutional court‟s verdict is denting the programme‟s credibility. In the euro area. Any development that undermines the credibility of the OMT may lead to renewed. which we expect. and the subsequent creation of the Outright Monetary Transactions bondbuying programme. Volatility is likely to continue until markets settle into new. and Italian yields are now close to this level. the Fed‟s stated determination to start reducing QE looks premature and will have to face the growth test. particularly from the European Central Bank (ECB). And the continued drop in activity and rise in unemployment across southern Europe put increased pressure on governments. Economic pain in southern Europe continues to increase Meanwhile. The programme is credible. even in northern countries that can afford fiscal expansion. ranges. pressures within the euro area. fiscal and debt burdens are not declining. 03 July 2013 5 . although it could take weeks to materialise in the data. This is necessary for sustainable growth. A sustained rise in yields could trigger a loss of confidence in peripheral debt if market participants believe that higher marginal funding costs threaten these countries‟ fiscal targets. Under the OMT. this time has not been used effectively. The question is whether the spillover effect from rising US bond yields and the undermining of the OMT threaten to reignite the euro-area crisis. progress is slow. Italy is too big to fail and too big to be rescued. despite the programme‟s clear success (at no cost to German taxpayers). have been key drivers of improved sentiment in the euro area. possibly wider. the ECB pledges to buy an unlimited amount of sovereign bonds in the secondary market in order to stabilise yields if necessary. even if it means that China will have to be satisfied with growth rates of 7-8%. and unemployment continues on an upward trajectory. The changing environment A rebalanced China will help the world economy shift towards a more sustainable growth path The current global policy environment is changing. and developments surrounding the OMT are cause for concern. It helped to reduce sovereign bond yields for troubled countries such as Spain and Italy. Draghi has renewed his verbal commitment to the OMT. Policy actions in China are consistent with the authorities‟ intentions to rebalance the economy.Standard Chartered Middle East and North Africa Focus Europe: OMT under siege Little has been done with the time bought by Draghi’s commitment to do ‘whatever it takes’ The euro area has been of less concern to the markets in recent months as it continues to benefit from policy commitments. The momentum has stalled as Germany focuses on its September elections. and unnecessary. in our view. In our view. without the countries applying for assistance or the ECB spending a single euro. As a result of the lack of growth. and because of this credibility it has been a huge success. the ECB‟s promise to do “whatever it takes” to save the euro. could push back the tapering start date. saying that the Fed‟s decision to taper makes the OMT option “even more relevant”. In the US.

including overseeing an estimated USD 120bn spending plan as Qatar prepares to host the FIFA 2022 World Cup.000 800 600 400 200 0 Saudi Arabia UAE Kuwait Qatar Oman Bahrain 2013F 2012E 2014F Sources: IIF. Simrin Sandhu. and regional tensions affect confidence levels in Lebanon. in a widely anticipated move. handed over power to his 33-year old son. Geopolitics are one indicator of this. the outgoing Emir Sheikh Hamad bin Khalifa Al Thani reversed his country‟s economic fortunes by investing heavily in LNG almost a decade ago. Standard Chartered Research 03 July 2013 Figure 2: Net foreign assets are growing USD bn 1. he will undertake the next phase of Qatar‟s development. Sheikh Tamim bin Hamad Al Thani. Economic outlooks also paint a contrasting picture across the region. +971 4 508 3647 Shady. The recent smooth political transition in economically strong Qatar contrasts with political uncertainty in Egypt and domestic and regional challenges affecting Lebanon. Egypt‟s growth is likely to remain lacklustre as political transition impedes much-needed economic reforms.Sandhu@sc.Standard Chartered Middle East and North Africa Focus Regional overview – Realities and challenges Shady Shaher. the UAE and Qatar are ploughing ahead with significant government-mandated projects related to infrastructure and diversification. A reformist and pragmatist. and Jordan undertakes difficult but necessary fiscal reforms. stability and growth for hydrocarbon exporters and challenges for non-hydrocarbon exporters. Standard Chartered Research 6 . a role it is likely to continue to play under the leadership of Emir Sheikh Tamim bin Hamad Al Thani.200 1. On 25 June. Energy exporters in the Gulf Cooperation Council (GCC) have managed to bolster their fiscal and current accounts while debt metrics in Lebanon deteriorate. Qatar has frequently been seen as a regional power broker. Politically.Shaher@sc. Sheikh Hamad bin Khalifa Al Thani.com Politics: Not all transitions are painful Political stability and the recent smooth transition of power in Qatar stand in stark contrast to challenges the wider region as power shifts hands. Figure 1: GCC current account surpluses USD bn 400 350 300 250 200 150 100 50 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sources: IMF. Elsewhere in the MENA region.com Economic outlook: Too close for comfort The MENA region‟s dynamics reflect a tale of two worlds: resilience. Qatar has been viewed as both an economic and political maverick. Emir Sheikh Tamim bin Hamad al Thani was nominated crown prince in 2003. while Jordan balances an increasingly expensive subsidy bill against necessary reforms. Qatari Emir. +65 6596 6281 Simrin. energy exporters such as Saudi Arabia. While energy exports are unlikely to increase this year given OPECmandated quotas.

from USD 390bn in 2002. Economic growth in Jordan remains weak. especially in the case of the GCC long end. we are Overweight Dubai Inc. The oilexporting Gulf region is undoubtedly spending from a position of strength. The fiscal deficit widened to 9. after almost seven years of decline. where the sovereign and quasi-sovereign bonds have a small spread cushion.5% of GDP in Q1-2013.Standard Chartered Middle East and North Africa Focus Elsewhere in the region. Hydrocarbon output and prices. Economic reform has been pushed back amid political turbulence and the economy is set to remain weak. however. though less so than Asian credit. across the sovereign. to close to USD 1. combined with weak economic growth. Current account surpluses in this period averaged USD 1. Qatar‟s fiscal surplus for FY13 (ended 31 March 2013) was USD 7.7% of GDP in 2012. Debt-to-GDP is rising again. Credit EM credit has sold off hard on the back of worries about the potential withdrawal of liquidity once Fed tapering of its bond-buying programme begins. Both Qatar and UAE credits have widened in response to the recent spike in UST yields. While GCC credits are defensive choices in times of market volatility given the relatively low involvement of international investors. politics remain in flux. is likely to be a further drag on the deficit. a public-sector wage increase has been approved. sectors where the regional bid is strong – such as short-duration bonds and sukuks – should be fairly resilient in times of market volatility. while political stalemate impedes efforts to implement revenue-raising measures.5tn in 2012. The primary fiscal surplus has been eliminated for the first time in three years. Jordan‟s government is undertaking difficult but necessary reforms to limit debt.87tn. quasisovereign and financial sectors. Despite this. Interestingly. It increased three-fold in 10 years.5% of GDP in 2013 from 7. and remittances from Lebanon‟s expatriate workforce remain resilient. and is likely to exceed 140% in 2013. but FX reserves are strong. The government intends to reduce the primary deficit (excluding grants) to 5. oil exporters are managing to increase domestic spending and boost reserves through SWFs and central bank assets. We are Overweight Saudi and Kuwaiti credits and Neutral Bahraini credits 03 July 2013 7 . Fuel subsidies were eliminated last November and the government continues to resist widespread street protest to roll back these measures. That said. and hydrocarbon-funded spending have boosted nominal GDP in the six GCC states. In Lebanon debt metrics look challenging. We are Neutral Abu Dhabi financials and quasi-sovereign names. with oil prices supported by growing demand from Asia and regional geopolitical challenges. We remain Underweight Qatar. The need for fiscal discipline Fiscal discipline and reforms are key for non-hydrocarbon economies. the highly rated nature of the market – and consequently its lower credit spreads – means the GCC space will underperform Asia as UST yields rise. In Lebanon regional and domestic challenges are affecting confidence. at almost 20 months of cover. this. Egypt‟s political roadmap is uncertain. and policy makers must strike a balance between fiscal reforms and social spending. in Saudi Arabia the 2012 fiscal surplus was estimated at USD 102bn (almost 14% of GDP).6bn. Monthly price adjustments on fuel products resumed early this year. or almost 4% of GDP. This is underpinned by firm hydrocarbon prices. In terms of positioning.

The oil sector is set to reverse its negative contribution to GDP in 2012.5% contraction in the aggregate balance sheets in Q1-2013. combined with onshore production increases.0 -4. These issues have created some market pressure. non-oil support to growth is likely to prove less effective Resumption of normal levels of oil production at the large Saudi-based and operated Abu Safaa field (78% of Bahrain‟s crude oil production).0 Figure 2: Real GDP growth in percentage terms 2000-12: annual figure and moving average (by 2 years) 9 8 7 6 0.0 2014F 3. This is in line with the arguments we outlined in our recent publications. should support healthy 4% real GDP growth this year. Healthy GDP growth driven by a pick-up in oil production GDP growth is not an issue in 2013: oil production will be back on track and is expected to support the recovery.0 -3. We estimate that there will be an average output increase (between the two major fields) of 14% y/y compared with 2012 and 4% against the benchmark year 2011. Credit growth was down to 4.38 10. Figure 1: Standard Chartered forecasts – Bahrain 2013 should see an oil-related technical rebound in growth 2012 GDP (real % y/y) CPI (% annual average) Policy rate (%) USD-BHD Current account balance (% GDP) Fiscal balance (% GDP) 3.4 3.0 2. Moody‟s cited concerns about the fiscal implications of Bahrain‟s high and rising breakeven oi l price (USD 122/barrel.com Healthy GDP growth masks fiscal issues Bahrain‟s economy is recovering.Dauba-Pantanacce@sc.38 10. On tourism.5 5 4 3 2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sources: IMF.6 2013F 4. In June. credit rating agency Moody‟s warned that it was putting Bahrain‟s Baa1 rating under review with a negative outlook. The Bahraini banking sector has faced a challenging environment. Standard Chartered Research 8 Source: Standard Chartered Research 03 July 2013 .5 0.5 -2.5% in Q1 compared with double-digit growth in 2012. and questions about debt sustainability in an environment of slower growth compared with pre-2008 (Figure 2) and structurally rising fiscal expenditure. and NPLs up to 8% of gross loans compared to half this level before the crisis. despite a welcome 10ppt improvement to 48% in hotel occupancy for the first four months of the year. in 2013.5 0. with a 2. above our current oil forecast).38 10.Standard Chartered Middle East and North Africa Focus Bahrain – A fiscal challenge Philippe Dauba-Pantanacce. Manama‟s hotel occupancy rate was still among the lowest in MENA (along with Cairo). „bbl‟. but at the same time the high breakeven oil price in its budget is a source of risk.8 0.5 0.7 3. This should compensate for lacklustre growth in the non-oil sectors. +44 20 7885 7277 Philippe. note that it was 68% in the benchmark year 2010. In May the IMF‟s Article IV concluded that economic improvement had to be accompanied by fiscal consolidation if Bahrain were to avoid a deterioration of its fiscal outlook.0 0. as reflected in recent price action.

After hitting a two-year low on 25 January at 179bps. 5Y CDS spreads jumped by 109bps. Bahrain was already trading wide. for 2013) and the fiscal break-even oil price (USD 122/bbl). following five weeks of increases.5bn of eurobonds last summer. Fiscal consolidation is becoming a crucial medium-term macro policy objective But we expect the fiscal deficit to widen again in 2013. The risks are to the downside. it will most likely result in unplanned new increases in recurrent budget spending.Standard Chartered Middle East and North Africa Focus Fiscal deficit Final figures for 2012 brought good news on the fiscal front. Moody‟s 14 June announcement that it would put Bahrain under review for a possible downgrade (it is now Baa1) compounded a general emerging-market (EM) space sell-off that had already affected Bahrain more than its regional peers. followed by a 37. Figure 3: Bahrain’s 2022 USD sovereign bond price Year to date 116 114 112 110 108 106 104 102 100 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Sources: Bloomberg. who are demanding another15% increase in publicsector wages. In August 2011. There is additional uncertainty about the implementation of the 2013 budget. There is a stalemate between the government and the Members of Parliament. notably scaled-back gas subsidies for industrial buyers.5% pay increase for civil service and military jobs was agreed. Standard Chartered Research 03 July 2013 9 . To put this into context.5% rise in pensions. Bahrain‟s 5Y CDS had traded at a much higher level after the 2008 crisis and was in the 300-400bps range from Q4-2011 to Q3-2012. Market pressures Markets have reacted to recent comments on Bahrain. the first since its USD 1. Moody‟s note was followed by a 69bps rise in yields in one week on the 2022 bond (see Figure 3 for the bond price trajectory YTD). Compared with its rated peers. a 36. reaching 288bps on 24 June. given the gap between the average oil price (we see Brent at USD 109/bbl. which the Parliament has still not passed. compounded by the general EM space sell-off Bahrain is considering a benchmark-sized international bond issuance. owing mostly to reduced subsidies and transfers. There are future expenditure pressures (promises of subsidised housing schemes) and the rise in current spending (3x the amount of capital spending) – owing to sticky recent rises in public salaries and pensions – will likely exacerbate the negative fiscal trend. Whatever compromise is found.

Standard Chartered Middle East and North Africa Focus Egypt – Reform pushed back Nancy Fahim. Electoral laws are drafted by Egypt‟s upper house of parliament.Fahim@sc. to respond to popular demands of renewed presidential elections.500 1. The authority and extent of power of various state bodies are in question. The armed forces stated their readiness to intervene should popular demands go unmet within the 48-hour window provided. The date of parliamentary elections is also uncertain. +971 4 508 3627 Nancy. Egypt‟s political transition will take time. provided by the country‟s armed forces. with debate over the electoral laws concerning parliamentary elections. Egypt is relying on external funding to address its upward-spiralling subsidy expenditure.000 Q3-FY06 Q1-FY08 Q3-FY09 Q1-FY11 Q3-FY12 Source: Bloomberg 03 July 2013 Source: Central Bank of Egypt 10 . The current environment will lead to sub-trend economic growth and youth unemployment is already at c. Egypt‟s electoral laws are also under dispute and this will likely push parliamentary elections into late 2013 or early 2014. In May 2013 FX reserves recovered to their highest level since January 2012.000 500 0 -500 -1. Figure 1: Rising inflation given EGP weakness Headline inflation. Confidence is key and political uncertainty is affecting the growth and investment outlooks. Egypt saw mass demonstrations calling for new presidential elections.com Political change brings volatility Egypt‟s economic and market outlook will be subject to political developments on the ground. although this has taken a back-seat in light of the latest demonstrations. Although these inflows have been positive.500 -2. Earlier announcements to hold parliamentary elections towards October-November 2013 are likely to prove unrealistic.000 -1.000 -2. which was only voted in on a voter turnout of 7-10% in January 2012. Egypt‟s politicians were operating within a 48-hour window. Egypt would benefit more from the involvement of the IMF. This is a deterrent to potential investors and is negative for domestic business confidence. as this would help boost reserves and act as an anchor for much-needed economic reform. Egypt‟s legislative and judicial powers are at odds. giving rise to opaque political and legal frameworks. effectively presenting the government with a 48-hour ultimatum. Political developments and confidence Electoral laws are under dispute and conflict between Egypt’s legislative and judiciary arms is indicative of political instability and opaqueness in the legal framework On 30 June. Draft laws are then reviewed by Egypt‟s judiciary and can be re-drafted by the upper house if rejected. Economic initiatives have taken a backseat against political discussions. y/y % 25% 20% 15% 10% 5% 0% Jan-06 Figure 2: Current account balance USD mn 2.82%. mainly on the back of financial assistance from Qatar and Libya. At the time of writing.500 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 -3.000 1.

1% in Q1-2013.200 1. from 8. Since 2005. sustainable economic reform is needed In our view. Egypt has spent more than USD 100bn on subsidies.4% in FY08. Figure 3: Tourist arrivals ’000 1. despite a participation rate of only 48. This helps accelerate inflation and also makes imports more expensive. such as subsidy reform. net international reserves hit a record low in March 2013.4bn. Buying time External assistance is a short-term fix.000 3. This results in a vicious cycle of even more bloated payments on imported food and fuel and greater pressure on reserves. manufacturing. at USD 13. Egypt‟s economic health could improve by taking important measures towards economic reform.3.400 1.3% in the first nine months of FY13.000 0 -1. FDI collapsed to 0. other economic measures. The structural nature of unemployment means it is unlikely to be remedied any time soon.1% Egypt‟s Production Index. The external support translates into periods of stability for the EGP. However. a composite index made up of key sectors of the economy. points to contraction in Egypt‟s largest economic sector. need to be prioritised given their immediate and far-reaching impact on the economy. The level of reserves recovered to USD 16bn in May 2013 (c. The low level of reserves is leading to reduced support for the Egyptian pound (EGP) against the US dollar. Negotiations with the IMF resumed in March-April 2013 but a deal has yet to materialise. mainly on the back of financial support from Qatar and Libya.000 Q3-FY06 Q1-FY08 Q3-FY09 Q1-FY11 Q3-FY12 Source: Bloomberg 11 .9bn.000 4. Domestic investment as a percentage of GDP fell to 16.Standard Chartered Middle East and North Africa Focus Sub-trend growth The lack of clarity in Egyptian politics is negative for the economy and economic growth should remain sub-trend. could help improve confidence on the ground and among international investors. disrupting output. Subsidy reform is a priority. as it could help boost reserves and act as a policy anchor for politically painful economic reforms.07% of GDP by December 2012. given that subsidies take up nearly 30% of the state budget.2%.1% in FY08.000 2. FX reserves are under pressure to support such payments.3 months of import cover). Labour disputes across industries are common. The more liquid FX reserves stood at USD 8. mainly comprised of fuel. These. Unemployment reached a record high rate of 13. with no apparent ceiling to such expenditure.000 1. In our view. The unemployment rate has reached a record high of 13. It contracted by 5. it reduces pressure to implement sustainable subsidy reforms. however.000 800 600 400 200 0 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Source: Central Bank of Egypt 03 July 2013 Figure 4: FDI USD mn 5. an IMF programme is essential. Initiatives to address Egypt‟s chronically high unemployment have taken a backseat amid the country‟s changing political landscape.7% in FY12 (ended June 2012) from 22. although the latest data (for March 2013) moved back into positive territory. in turn. Attracting foreign investment is a challenge and the shifting legal landscape creates uncertainty in relation to contract law.

5 6. Risks are to the downside and 6-7mmbd is a possibility given the present environment.3mmbd and instead be closer to 3. +44 20 7885 7277 Philippe. We also think that 2013 oil output could slightly undershoot our previous projection of 3. They are now in line with our own estimates of 9mmbd (see Iraq March update) and the timeline for reaching this figure has been extended to 2020. Relations with the Kurdistan Regional Government (KRG) remain tense despite attempts to improve matters.00 1.5 6. This reflects the fact that Iraq‟s revenue and GDP drivers are almost entirely oil dependent.Dauba-Pantanacce@sc.170 12. at the peak of the US troop surge. Partial provincial elections in April showed strong support for PM Maliki. President Jalal Talabani‟s current withdrawal from the political scene following a stroke exacerbates the situation. The national unity government has weakened. but current political uncertainties constrain its huge economic potential Oil output projection cut Authorities finally cut their output projections. fiscal policy and politics remain key to the medium-term outlook.5 6. respectively. 2012-Apr 2013 2012 production boost will not be repeated in 2013 168 163 158 153 148 143 138 133 128 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Source: Standard Chartered Research 03 July 2013 Sources: IMF.1mmbd. driven by oil 2012 GDP (real % y/y) CPI (% annual average) Policy rate (%)* USD-IQD* Current account balance (% GDP) Fiscal balance (% GDP) 8. May‟s death toll was the highest since 2008. Iraq’s macroeconomic metrics are very strong and will remain so. the general security situation has also deteriorated.4mmbd. The direct consequence of all this is that central government weakness. CPI inflation contained below 5%. The macroeconomic metrics should remain very strong: in 2013 we forecast GDP growth of 8% (cut from 11% previously mostly because of the security situation). the government acknowledged that its initial oil output projections (12 million barrels per day „mmbd‟ by 2017) would not be achieved.3 2013F 8. Oil. In May – the latest data available – production was at 3.1 6.0% of GDP. Standard Chartered Research 12 . Bloomberg.0 3.50 1. with a sharp increase in road bombs and various explosions in urban areas.0 4.7 7. and current and foreseeable delays in infrastructure investment implementation.5 Figure 2: IMF Iraq Crude Production Index.0 5.0 2014F 9.15mmbd. they could still be too optimistic In June. implementation issues and a difficult business environment undermine the economic development roadmap.com Fractured political landscape undermines economic potential Recent months have revealed growing instability in Iraqi politics. as he was a respected and efficient political mediator.170 7. versus the maximum level reached in 2012 of 3. Figure 1: Standard Chartered forecasts – Iraq Strong growth.0 5. and current account and fiscal surpluses at 7.170 9. frayed by several defections and deep sectarian rifts.Standard Chartered Middle East and North Africa Focus Iraq – Political uncertainties Philippe Dauba-Pantanacce.00 1.0% and 5.

000bpd from 300. Power cuts continue. although it might not reach the projected capacity of 175.000 barrels a day (bpd) by the end of the year (we see it about 15-20% lower than this). it is crucial that government does its best to implement fully the planned budget spending In recent years. While part has been used to repay debt (debt to GDP has fallen from 100% a decade ago to about 30% currently). water does not reach all parts of the country.5% to 7. Iraq has earned hefty oil revenues. On 9 June. the first in three years. This is crucial. Fiscal policy is key Iraq’s infrastructure and capital development needs are huge. Figure 3: 5Y CDS spread. the KRG‟s Natural Resources Minister said the KRG would start exporting crude via a pipeline to Turkey by the end of September. Increasingly fractious politics amid Kurdish reconciliation attempts Politics remain a key risk at three levels: the central government’s longevity. But the authorities have had very mixed results in disbursing the capital budget. and nationally between the various sects In April. Standard Chartered Research 03 July 2013 13 . PM Maliki made an official visit to the Kurdish capital Erbil. as infrastructure probably constitutes one of the biggest impediments to Iraq realising its full potential. a round of partial provincial elections took place while some that were planned had to be cancelled because of violence. the KRG has exported around 30. relations with the KRG. Two majority Sunni provinces (in north and west Iraq) voted later.000bpd currently. the bulk is meant to support various ambitious public works. in an attempt to improve relations.000bpd of crude to Turkey by truck.Standard Chartered Middle East and North Africa Focus Production at the giant Majnoon field (Iraq‟s third-largest oilfield) should resume as promised in 2013. To date. Operating companies at Majnoon are reportedly in similar discussions. on 20 June. and even in terms of industrial use (typically in oil fields) much larger water infrastructure-management projects are required. With USD 47bn of capital spending earmarked in the 2013 budget. It hopes to increase total exports by one-third by the end of the year.3% is symptomatic of this. reaching 400. and the recent revision of last year‟s fiscal surplus from c. Although very little has transpired from the talks and several topics remain unsolved on both sides. early May to 24 June 2013 Security issues have triggered a renewed spike in CDS in recent weeks 485 465 445 425 405 385 365 03-May-13 10-May-13 17-May-13 24-May-13 31-May-13 07-Jun-13 14-Jun-13 21-Jun-13 Sources: Bloomberg. it is crucial that the government does not undershoot its target again. The Oil Ministry is currently renegotiating with operating companies to target lower production plateaus (the desired average trend production rate). such as infrastructure developments and basic utility installation. the visit was symbolically important. In June.

5% of GDP. S&P downgraded Jordan‟s long-term foreign sovereign credit rating one notch to BB. UAE authorities deposited USD 1bn with the central bank in January 2013. The fuel subsidy was eliminated in November 2012 and the primary deficit (excluding grants) was reduced to 7.8 4.7% of GDP in 2012. up from USD 6. This will be Jordan‟s second foray in the markets. The newly elected parliament has endorsed key reforms targeted under the USD 2bn IMF Standby Arrangement.5 2014F 3. The central bank has also managed pressure on reserves by raising interest rates and maintaining the attractiveness of dinar-denominated assets.0 Figure 2: Public debt rises to 80.2 5.2 months of import cover). Official FX reserves increased to USD 9.9% in 2011 – the lowest in more than a decade. To this end. However.71 -8. with a strong 57% turnout reducing political uncertainty. Standard Chartered Research 14 .75 0.7bn in April 2013 (5.55 on 31 December 2012.9 -7.71 -14. on 20 May.2 2013F 3.5 months) at the end of 2012. Figure 1: Standard Chartered forecasts – Jordan Reforms to correct twin deficits 2012 GDP (real % y/y) CPI (% annual average) Policy rate (%)* USD-JOD* Current account balance (% GDP) Fiscal balance (% GDP) 2. This has given markets confidence.71 -9. significantly reducing credit risks.0 5. Appetite from regional GCC markets remains strong and the US administration has agreed to issue a guarantee for the new dollar bond. given ongoing disruption to its cheaper gas supply from Egypt.75 0. GCC states have pledged USD 5bn to Jordan in grants over the next five years to finance infrastructure projects. +92 213 2457839 Sayem.9 4. and the Jordan 2015 bond price has rallied to 99.6% in 2011.Ali@sc.2% of GDP % of GDP 90 80 70 60 50 External Domestic 40 30 20 10 0 2007 2008 2009 2010 2011 2012 2013F Sources: CBJ.2 5.25 0. Financing these deficits remains a challenge: in 2012 foreign grants fell to 1.1 -8. High oil prices in 2012 increased the energy import bill. The negative outlook reflects higher financing needs owing to the conflict in Syria and a rising energy bill. from 97. its first was a successful USD 750mn issue in November 2010.0 -5. Standard Chartered Research 03 July 2013 Sources: CBJ. putting it three steps below investment grade. On 20 May.com S&P downgrade is unlikely to dampen market appetite Jordan is ready to enter the regional credit markets and is aiming to issue a USD 2bn eurobond in H2-2013. from 9.567 by 18 June. S&P‟s downgrade is due to “Jordan's weakened external and fiscal profiles in the wake of reduced foreign grants and weaker terms of trade”. from 5.5 5.from BB.4bn (3. the S&P downgrade fails to take into account progress on key political and economic reforms initiated by the government. S&P downgraded Jordan's long-term foreign sovereign credit ratings one notch to BB- In our view. leading to wider trade and fiscal deficits.Standard Chartered Middle East and North Africa Focus Jordan – Targeting a USD 2bn eurobond Sayem Ali. Elections were held in January 2013.

LHS) FX reserves (USD bn. Sources: CBJ.Standard Chartered Middle East and North Africa Focus Foreign grants projected at 4. It also resumed the monthly pricing adjustment on fuel products in January 2013. including USD 250mn each from Saudi Arabia and Kuwait. The government anticipates more grants in H2.3% of GDP in 2013. The Gulf Cooperation Council has pledged USD 5bn in grants to Jordan over the next five years to finance public-sector investment projects. from 36. However. The UAE and Saudi Arabia transferred USD 1bn and USD 200mn. flows have increased significantly YTD. The government‟s medium-term energy strategy envisages gradual tariff increases to enable NEPCO to break even by 2017.8% of GDP While foreign grants declined in 2012. The authorities will need to walk a tightrope between fiscal austerity (needed to keep public-sector indebtedness in check) and higher social spending (necessitated by high unemployment and anaemic growth). to the Central Bank of Jordan in Q1-2013.9% in 2008. These measures should reduce the subsidy bill by JOD 800mn (3.7% of GDP by end-2012.7% of GDP in 2012.7% of GDP in 2012 The government has undertaken difficult fiscal reforms to limit the build-up of debt. Given weak growth. Standard Chartered Research 03 July 2013 15 30% Dollarisation ratio (RHS) Import cover (months. The government aims to reduce the primary deficit (excluding grants) to 5. months of import cover and dollarisation ratio 14 12 10 8 15% 6 4 2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 10% 5% 0% * 2013 data is available until April 2013. In November 2012 fuel subsidies were eliminated by raising the price of cooking oil (by 50%) and of gas at the pumps (by 35%). Hence. Significant progress on key reforms The government targets a reduction in the primary deficit (excluding grants) to 5. losses at the state-run electricity supply company NEPCO should remain high. the losses will be a drain on government finances and keep the overall fiscal deficit high. Until then.5% of GDP) in 2013.6bn (4. This led to widespread street protests. Domestic debt ballooned to 57. Jordan‟s public-sector debt has been rising on account of relatively large fiscal deficits in recent years – and is set to touch 83% of GDP by end-2013. debt levels will likely continue to rise in the absence of significant fiscal consolidation. LHS) 25% 20% . due to the differential between the cost of generating electricity and the price to consumers.5% of GDP in 2013 from 7. Figure 3: Jordan’s FX reserves rise. at 4. the government resisted the pressure to roll back these reforms. respectively.8% of GDP) compared with USD 460mn (1. including development of shale gas reserves and construction of a new LNG terminal at the Aqaba port. foreign grants in 2013 are expected to total USD 1.5% of GDP) in 2012. However.5% of GDP in 2013 from 7. dollarisation ratio declines USD bn.

9 million barrels per day (mmbd). +971 4 508 3647 Nancy.500 5. As a result.000 2. In 2013.000 3. due to a number of factors which we highlight below. Politics delay investment Kuwait usually undershoots its investment targets due to slow project approvals. as outlined in its „Kuwait 2035 Vision.000 1. Over the longer term. oil wealth is distributed generously among Kuwaiti nationals.0mmbd by 2022. It is seeking to increase its oil production capacity to 3.Fahim@sc. The public also benefits from heavy state subsidies on food. fuel and utilities.Standard Chartered Middle East and North Africa Focus Kuwait – Non-hydrocarbon-driven growth Nancy Fahim. The 2012-13 Global Competitiveness Reports ranks Kuwait 100 out of 144 countries globally. two parliaments were formed. Kuwait‟s six-month old parliament was dissolved. Against the slower pace of development. in February and December. Kuwait intends to become a regional trade and finance hub.000 Revenue 2. Kuwait lags other GCC countries when it comes to FDI and country competitiveness The slow pace of capital expenditure makes Kuwait the lowest recipient of FDI among Gulf Co-operation Council (GCC) countries. from the current c. or increased publicsector salaries. growth will need to come from the non-hydrocarbons sector and the need for capital spending in this area will become increasingly relevant.000 Expenditure 2. In mid-June 2013. As Kuwait builds the necessary facilities. where lending for personal purposes is the fastest-growing segment (13. while the rest of the GCC countries rank in the top 12.6-4. In 2012. often through direct cash handouts and benefits. The 2010-14 USD 109bn development plans aim to develop the country‟s infrastructure and non-hydrocarbon sectors. Kuwait‟s GDP is more than 50% dependent on oil and more than 80% of government revenue is sourced from oil export receipts.3. In April. spending is largely distributed away from capital spending and towards current expenditure. The latter was largely proFigure 1: Kuwait’s oil production ’000 bpd 3.500 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Source: Bloomberg 03 July 2013 0 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Source: Bloomberg 16 .com Diversification away from oil is slow Kuwait‟s development plans have moved forward only slowly. parliament approved a law to write off interest payments on outstanding debt held by Kuwaiti nationals.000 6. So far it is consumption not investment that is driving the economy.3% y/y in April 2013).000 Figure 2: Kuwait’s public finances KWD mn 7. Over the last two years. we expect moderate growth of 3% as oil production hovers at current levels of 2. with private-sector participation.000 4.‟ However. This is evidenced in credit growth figures.000 1.1mmbd. Kuwait boosted oil production but it is now operating at near full capacity.

000 16.000 28. growth will need to be driven by non-hydrocarbons. Political paralysis slows investment expenditure The FY14 budget (fiscal year starting 1 April 2013) has yet to be passed. Kuwait ‟s oil reserves should last another 100 years. New parliamentary elections should be held on 27 July.40%.000 24. in which case the current dependence on oil revenue could prove problematic. owing to political acrimony that led to parliament being suspended. Figure 3: Kuwait’s FX reserves USD mn 30. The country has the world‟s sixth-largest proven oil reserves. However. The FY13 budget was approved eight months into the fiscal year.000 26.000 22. Kuwait‟s risk scenario comes in the form of a prolonged drop in oil prices. We expect Kuwait to continue to build sizeable fiscal and external balances in 2013. with oil production currently at nearcapacity. about threequarters of which are estimated to be managed by the Kuwait Investment Authority). around 6. tension between elected MPs and appointed cabinet officials is common and can exacerbate the already slow pace of capital expenditure in the country. Kuwait has built substantial FX reserves (USD 28bn) and has one of the world‟s largest sovereign wealth funds (it holds foreign assets of c.1% of the global total. given our Brent crude forecast of USD 109/bbl for the year and the expected slow capital spending outlay. Kuwait‟s comfortable financial position makes it less urgent to diversify the economy away from oil.000 14. Resource-rich At current rates of oil production.000 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Source: Bloomberg 03 July 2013 17 . In addition to frequent elections. Furthermore.Standard Chartered Middle East and North Africa Focus government due to extensive opposition boycotts which led to a voter turnout of c.USD 457bn.000 18.000 20. This is a hurdle to investment spending.

0 10.5 2013F 2.0 1. which brought the debt-to-GDP ratio to around 135% from 180% (Figure 3). Confidence is a very important – yet very volatile – GDP growth driver in Lebanon. This is the first fiscal deterioration in three years. which has started to edge up again A parallel movement has been observed in Lebanon‟s debt-to-GDP ratio. as a public-sector wage increase has been approved and is being implemented.500 -16 -10. Recent figures show that Lebanon‟s fiscal deficit widened in the first quarter. This has always been one of the most salient weaknesses of the Lebanese macro story.0 Figure 2: Fiscal deficit % to GDP -5 -6 -7 -8 1. but could return as quickly as it disappeared. +44 20 7885 7277 Philippe.0 2014F 4. Figure 1: Standard Chartered forecasts – Lebanon A pause in growth 2012 GDP (real % y/y) CPI (% annual average) Policy rate (%)* USD-LBP* Current account balance (% GDP) Fiscal balance (% GDP) 1.com Shortfalls increase. which was already the third-highest in the world. in line with our forecasts. mostly due to a low base effect from a feeble 2012. Most of the reduction in recent years was the result of much faster growth of the denominator (GDP). This is mainly because of domestic as well as regional political events.0 -10 2008 2009 2010 2011 2012 2013 F *End-period. The primary fiscal surplus – which was one of Lebanon‟s economic strengths – has basically been eliminated.Dauba-Pantanacce@sc.500 -9 -10 -7.0 5. reaching 9. the trend has reversed and we think that the figure could exceed the 140% mark again by the end of the year. In the meantime.5 6. We expect growth to pick up marginally in 2013.500 -18 -7. After seven years of decline. while political stalemate prevents any revenue-raising measures from being approved.4 10. We see no amelioration in the coming months.Standard Chartered Middle East and North Africa Focus Lebanon – Protracted confidence slump Philippe Dauba-Pantanacce. combined with accelerating government expenditure. Source: Standard Chartered Research 03 July 2013 Sources: IMF. as the country cannot afford further weakness in the current environment. economic activity suspended Most indicators point towards very weak growth for Lebanon this year. and recent weak growth will compound the deficit. Fiscal deterioration and lower GDP growth have contributed to the trend reversal of a crucial debt metric. Standard Chartered Research 18 . Most of Lebanon’s GDP drivers are being depressed by domestic and regional political uncertainties Debt metrics worsen Weak GDP growth. has translated into a deteriorating fiscal position and debt-to-GDP ratio. deteriorating public finances should be tackled. it is essential that Lebanon maintain a secure buffer against potential shocks: it needs to address its widening budget deficit and resume the declining trend in its debt-to-GDP ratio. Lebanon’s debt-to-GDP ratio.0 5.0 1.5% of GDP (Figure 2). the ratio was bound to increase again. With GDP growth coming to a halt while the numerator (debt) continued to grow due to the fiscal deficit. Indeed.5 10.

The latest published figures on tourism are also weak. Fundamentals. Average room rates in Q1 also experienced the worst decline in the region: -23%.5% (y/y) in volume terms. Remittances remain resilient and figures related to the banking sector have so far defied the depressed operating environment. Figure 3: Gross public debt to GDP % 185% 180% 175% 170% 165% 160% 155% 150% 145% 140% 135% 2006 2007 2008 2009 2010 2011 2012 2013F Sources: MoF. non-resident deposits by 8% and – more telling from a financial confidence perspective – more USD were converted to the Lebanese pound (LBP) than the other way around. Nevertheless. a strong financial sector is the key backstop Despite the grim backdrop. combined with religious holidays in July are likely to compromise hopes of a summer tourist-season recovery. bank assets grew by 7% y/y. we note a degree of resilience in certain sectors. Standard Chartered Research 03 July 2013 19 . Some segments of the lower end of the auto industry are also benefiting. Travel warnings for GCC tourists (constituting around 50% of tourists). In Q1. In Q1-2013 the number of tourist arrivals slumped by 27% y/y (from an already low 2012 season) and hotel occupancy rates for the first four months of the year fell 8ppts to 58%. and money managers have been further underweighting their portfolio holdings of Lebanon. real estate rental and education services. the central bank has built up a strong buffer to deal with shocks. confidence and growth Construction and tourism have been among the worst hit by a drop in confidence Most of the key sectors of the real economy have either contracted or shown signs of weakness. which should provide a backstop to the aggregate consumption figures. representing 20 months of imports. 22% by value. along with Cairo and Manama. It is not all bad. There is no room for complacency though: the sovereign has recently experienced less appetite for its paper.Standard Chartered Middle East and North Africa Focus This led credit rating agency Moody‟s to change its rating outlook on Lebanon‟s government bond to negative (in line with S&P) from stable. supported by the influx of Syrian refugees. construction permits declined by 12. such as basic retail. putting Beirut‟s hotel occupancy rate among the weakest in the MENA region. In Beirut alone the number fell by 50%. In the first four months of the year. citing the conflict in Syria as responsible for halting economic growth. a wider fiscal deficit and higher debt. We have noted on several occasions the importance of tourism to Lebanese households and the economy at large. the financial sector remains insulated from its fragile environment With FX reserves at USD 37bn.

The need to keep diversification plans on track is also highlighted by Oman‟s limited oil reserves (c. we note a marginal increase in investment spending in February-April 2013 (1% y/y) compared with a 4% decline over the same period last year.8% y/y in the first four months of 2013. Oil production increased by 4. following the creation of 36. however. This is positive and balancing short-term spending priorities with longer-term investment outlays is important. Job creation will largely take place through the expansion of the civil and defence ministries. with hydrocarbons contributing c. highlighting some concentration risk. Spending this year will be primarily geared towards „current expenditure‟ as public-sector services expand to create jobs. However. Oman has made progress on diversifying its economic base.000 new jobs this year. Oman will benefit from the high oil-price environment.000 jobs in 2012. given the latter‟s ability to generate higher future growth. which are either cutting oil production or keeping it steady to support global oil prices. Oman can absorb unemployed youth into the public sector in the short term. y/y % 40% 35% 30% 25% 20% 15% 10% 5% 20% 15% 10% 5% 0% Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Source: Central Bank of Oman 03 July 2013 0% Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Source: Central Bank of Oman 20 . given comfortable oil-backed revenue levels. Oil revenue grew by 10% y/y in the first four months of 2013. Oil revenue is the main source of government revenue and will fund the substantial spending plans laid out this year.0% on the back of higher-than-expected oil production increases in Oman. The government aims to create 56. With one of the youngest populations in the MENA region. reaching 931.5.5% from 4. from 50% in 2000.Fahim@sc.30% to the real economy in 2011. and public finances are healthy.com A strong outlook We raise our 2013 real GDP growth forecasts to 4. We forecast Brent crude to average USD 109/bbl in 2013.Standard Chartered Middle East and North Africa Focus Oman – Oil to fuel spending Nancy Fahim. Exports are east-bound. In addition to the strong performance of oil exports.7 thousand barrels per day. This differs from other Gulf Co-operation Council (GCC) countries. China accounted for 51% of all Oman‟s oil exports. job creation in Oman is a national priority. It also slightly exceeds production amounts outlined in the 2013 budget. Oil exports are performing well. with China dominating as the country‟s largest oil export destination (it has been so since 2006). +971 4 508 3627 Nancy.5bn barrels). Figure 1: Investment spending improves Investment spending as a % of total spending 45% 40% 35% 30% 25% Figure 2: Policy-induced slowdown Credit growth. growing by 13% y/y over the same period. In 2012. Oman will need to refocus on investment spending in order to continue on the path of diversification away from oil The 2013 budget outlines spending of USD 33bn. Investment spending increases marginally Job creation is a national priority. which are expected to last another 17 years.

000 30. inflation has been steady. This follows initiatives taken in June 2012 to regulate lending and curb rapid credit growth. bank lending has traditionally been dominated by personal loans. First.6% from 3. At the same time. it has increased the share for housing loans to 15% from 10%.000 50. In our view. the slower pace of credit growth should help ease potential worries of an over-heating economy.000 40.000 20. with property values and the number of transactions both increasing. higher salaries (in Q1-2013. The real-estate sector is also seeing a recovery. Second.7% y/y in March 2013. The CBO has lowered the ceiling for personal loans as a share of total bank lending to 35% from 40%. ’000 bbl 60. Currently. the private sector faces the challenge of attracting Omani nationals as employees. this was not one of our primary concerns for Oman. the development of the private sector will be key in providing a sustainable path to job creation and employment. the Central Bank of Oman (CBO) has taken proactive measures to slow down double-digit credit growth.000 10. Despite maintaining double-digit credit growth for some time and the creation of new jobs and salary increases. However. We lower our inflation outlook for the year to 2.3%y/y. However. That said. Bridging the incentive gap will be critical in order to correct structural issues with Oman‟s labour market distribution. there is upside risk to our inflation forecast. This is likely helped by softer global food prices (the outlook for which is benign) and ongoing government subsidies on food and fuel.000 0 China Taiwan Japan Singapore Thailand India South Korea Source: Oman Ministry of Economy 03 July 2013 21 . these macro prudential regulatory steps are positive. Credit growth peaked at 22% in May 2012. nationals make up 14% of the private-sector workforce. as the real estate sector is recovering gradually and inflation is still at low levels. Oman increased the minimum wage of Omani nationals working in the private sector) and ongoing government spending should provide a strong basis for consumption spending and this should support bank lending. easing inflation Policy works – credit growth has slowed to single digits New jobs.Standard Chartered Middle East and North Africa Focus However. Inflation is at moderate levels Figure 3: Crude oil exports – Major destinations January-April 2013 total crude oil exports. since then it has steadily declined to 8. given continued expansion in the public sector to create jobs. Proactive regulation.

0 -6.6 7. including power projects. The other focus of investment spending is to develop trade infrastructure to link the Gwadar seaport with China and central Asia.000MW.0 9. ports and urban transport projects.15tn (4. Similarly. The PMLN‟s medium-term plan targets raising the investment-to-GDP ratio to 20% by FY18 from 12. water-sector projects (PKR 59bn) and trade infrastructure.6% in FY13.15tn (4.4% in FY14 (year starting July 2013). The power crisis is the binding constraint on Pakistan‟s growth.7% of GDP) in FY13. The first PMLN budget targets growth of 4. the power crisis costs an estimated 2.5% of GDP) in FY14. Figure 1: Standard Chartered forecasts – Pakistan Growth likely to pick up in FY14 2012 GDP (real % y/y) CPI (% annual average) Policy rate (%)* USD-PKR* Current account balance (% GDP) Fiscal balance (% GDP) 4.6% in FY13. Standard Chartered Research 22 .0 89. giving it a wide margin of victory over its main rivals.4 -2.5% of GDP) in FY14. The bulk of this spending is earmarked for large power-sector projects (PKR 225bn).4% in FY14 y/y growth. The PMLN‟s strategy is to eliminate „circular debt‟ by reducing power theft and rationalising subsidies.8 Figure 2: Growth targeted at 4.5 9.6 2013F 3.5% of GDP annually due to industrial and business shutdowns. up almost 35% from FY13 Investment spending is targeted to rise to PKR 1. Standard Chartered Research 03 July 2013 Sources: Ministry of Finance. Official results show that the PMLN won 185 of the 342 seats in parliament. According to the government.0 9. Sources: SBP. It has also outlined an ambitious goal of more than USD 20bn of power-sector investment over the next five years to create additional generating capacity of 10. % of GDP 10 8 6 GDP growth (LHS) 20 18 16 4 2 0 FY00 Investment % GDP (RHS) FY02 FY04 FY06 FY08 FY10 FY12 FY14 proj 14 12 10 Fiscal year ends June. motorways. Investment spending is targeted to rise to PKR 1. up almost 35% from PKR 850bn (3. the government‟s strategy focuses on developing trade corridors linking India to the Central Asian States.0 107 -2. compared with only 3% in the last five years. The PMLN won the election on a pro-growth manifesto aiming to revive the economy via large infrastructure spending.5 2014F 4.8 12.com PMLN wins a landslide victory in 2013 elections The 11 May general elections produced a decisive victory for twice former Prime Minister Nawaz Sharif.0 -7.Ali@sc. Pakistan sees a huge opportunity to increase transit trade by linking the port to the rapidly developing eastern Chinese province of Xinjiang. Growth is projected to accelerate to 7% within three years. including roads and ports (PKR 110bn).Standard Chartered Middle East and North Africa Focus Pakistan – New government targets 7% growth Sayem Ali. +92 213 2457839 Sayem. The FY14 budget allocates resources to build a motorway linking Gwadar to neighbouring China. versus 3.0 101 -1. The growth strategy is focused on large infrastructure investments. whose PMLN party secured a large majority in the National Assembly.4 10.1 -8.

up from just USD 74mn in FY13. This is positive for markets. contractors. and above) has been increased to 30% from 20%.8 months of import cover) from USD 9bn at end-2012. the government is in consultation with the IMF for a new three-year USD 5bn Extended Fund Facility (EFF). The subsidy bill is projected to decline by 35% in FY14 to 0. IMF staff visited Pakistan from 19-26 June. they endorsed the measures outlined in the budget. suppliers and service providers.9% of GDP. from USD 9bn at end-2012 The budget includes measures to raise the tax-to-GDP ratio to 10%.2013. Figure 3: Large debt payments due in FY14 USD bn 9 8 7 6 5 4 3 2 1 0 FY11 FY12 FY13 F FY14 F FY15 F FY16 F Sources: IMF. in partnership with other multilateral agencies. Official FX reserves declined to USD 6. the IMF staff requested in January 2013 that the government implement “prior” actions in order to fast-track the request for a new loan facility. There is a strong possibility that the IMF.a.1bn in programme loans for FY14. The FY14 budget addresses this. and increasing income tax on salaried employees. including almost USD 3bn to the IMF. versus 1. The 2.Standard Chartered Middle East and North Africa Focus A step closer to obtaining a new IMF loan External debt payments scheduled for FY14 total USD 5. Standard Chartered Research 03 July 2013 23 Interest payments IMF Repayments (excluding IMF) . The income tax rate for the highest earners (PKR 7mn p. This should be achieved primarily via the energy sector. Given pressure on FX reserves and large external debt payments. an increase of nearly 22% from 9. However. where power tariffs are likely to be raised by 20% in FY14. Official FX reserves declined to USD 6.8 months of import cover. Despite a significant increase in investment spending. down from 8.6% of GDP in FY12.3% in FY13.3bn by end-May 2013. Withholding tax (an advance tax adjusted against income tax paid) has also been levied on commercial importers. The government has budgeted USD 1. We maintain our USD-PKR forecast of 105 at end. of this. which are concerned about the outlook for the Pakistani rupee (PKR) due to declining FX reserves and large external debt payments due over the next year.8bn (2.8% in FY13. Key measures include raising the GST rate to 17% from 16%.5ppt reduction comes primarily from lower subsidies and tax measures. will offer a USD 9bn loan to Pakistan. equivalent to 1. and a breakthrough in negotiations seems likely.3bn by end-May 2013 (equivalent to 1. The actions outlined by the IMF staff include measures to reduce the fiscal deficit by 3ppt of GDP over three years. USD 5bn will come from the IMF.5% of GDP). the budget targets a lower deficit of 6.3% of GDP.

5 0. water and sanitation facilities. roads.64 27. Ahead of the FIFA World Cup. The MSCI upgrade to emerging market status reflects rising confidence in the economy.64 30.0 Figure 2: Growth to moderate to 5% Annual percentage change 30 25 20 15 10 5 0 7.64 25. We estimate the fiscal breakeven price.5 0. He is viewed as a reformist and will oversee an era of unprecedented expansion of Qatar‟s economy ahead of the 2022 World Cup.0 2. Emir Sheikh Hamad bin Khalifa Al Thani stepped down and handed over power to Crown Prince Sheikh Tamim bin Hamad Al Thani in a widely anticipated move.6 1. predominantly in the non-hydrocarbon sectors. The fiscal breakeven price. including that of gas price volatility. The next chapter of growth will come from substantial infrastructure spending ahead of the 2022 FIFA World Cup. Emir Sheikh Tamim was nominated crown prince in 2003 and has held key posts including Deputy Commander in Chief of the Armed Forces and Head of the 2022 FIFA World Cup Committee.Ali@sc. The USD 110bn investment programme should be complemented by an estimated USD 50bn investment by state-owned Qatar Petroleum (QP). +92 21 3245 7839 Sayem.0 2014F 5. a key measure of vulnerability to price volatility. power-generation plants.6% in 2012. from 6.Standard Chartered Middle East and North Africa Focus Qatar – New growth drivers Sayem Ali. After the impressive LNG-led growth of the past few years (real GDP growth averaged 16% in 2007-11). a key measure of vulnerability to price volatility.75 3.0 8.75 3. Diversification is also critical to reduce vulnerability to external shocks. Standard Chartered Research 03 July 2013 Sources: IMF. in June the government awarded USD 8.2bn worth of contracts for the Doha Metro Project that will link Doha to the 2022 World Cup stadiums. This includes a metro rail service.0 FY08 FY09 FY10 FY11 FY12 FY13F Hydrocarbon GDP Real GDP NonHydrocarbon GDP Sources: QBC. it should moderate as LNG production levels off due to the self-imposed moratorium on new hydrocarbon projects. at USD 60/bbl – significantly lower than other GCC states. including strengthening its financial sector and opening up the economy to foreign investment. a new airport. Qatar is making all the right moves. and about USD 100bn from other public enterprises and the private sector. These projects will help diversify the economy away from the LNG sector and support the government‟s 7% medium-term growth target. The projects should be rolled out in H2-2013. The government‟s National Development Strategy targets total investment of 27% of GDP per year from 2012-17. Government has outlined plans of USD 117bn investment projects ahead of the 2022 FIFA World Cup We expect GDP growth to moderate to 5% in 2013. large investment spending in the pipeline On 25 June.75 3. the government has outlined an ambitious USD 117bn infrastructure investment plan. is estimated at USD 60/bbl Figure 1: Standard Chartered forecasts – Qatar Growth to moderate at 5% 2012 GDP (real % y/y) CPI (% annual average) Policy rate (%)* USD-AED* Current account balance (% GDP) Fiscal balance (% GDP) 6.9 0. Standard Chartered Research 24 .0 8. hotels and sports facilities.6 2013F 5.0 2.com New Emir.

Standard Chartered Research 03 July 2013 25 . Non-performing loans (NPLs) declined to 1. MSCI EM funds manage around USD 7tn in assets.1% in 2010. The upgrade was prompted by a relaxation of foreign ownership laws and implementation of the delivery-versus-payment system which enables investors to be paid cash if a security is unavailable for delivery on settlement day. These measures aim to shift bank lending towards the large investment projects but could crowd out other projects.7% in 2012. These include limiting banks‟ securities portfolios to 25% of capital and reserves.Standard Chartered Middle East and North Africa Focus Banking-sector reforms QCB has introduced sweeping regulations to strengthen the financial sector ahead of the infrastructure spending spree Financing such large infrastructure projects could strain the domestic banking sector. from 2% in 2010.340 points on 19 June. USD 117bn Other Health FIFA-related Ministry of Interior and Interior Security Forces Education (including Qatar Foundation) Airport Industry. which highlights the need to develop local-currency debt capital markets in the Gulf Co-operation Council. MSCI announced its decision to reclassify the MSCI Qatar Index as emerging markets (EM). MSCI to upgrade Qatar to the EM Index MSCI upgraded Qatar to the Emerging Markets Index after relaxation in foreign ownership laws and implementation of the deliveryversus-payment system On 11 June. an upgrade from its previous frontier markets status. Shareholding regulations prevent any individual or associate from holding more than a 35% stake in the banks. This is a milestone for Qatar and the markets rallied on the news: the benchmark Qatar Exchange Index (DSM) traded at 9. Water. Banks‟ investment in securities outside Qatar is limited to 15%. Qatar‟s sovereign wealth fund bought domestic banks‟ real estate portfolios for USD 4bn. Since 2009. Figure 3: Large infrastructure spending in the pipeline Breakdown of spending by sectors. Property investments are limited to 10% of banks‟ capital and reserves. QCB has given banks six months to comply with its new credit and liquidity regulations. from 11. the government has recapitalised domestic banks twice following the real-estate market crash. an 18% y/y increase. The banking sector capital adequacy ratio (CAR) improved to 12. MSCI has allocated a weight of 0. The reclassification will take place in May 2014 as part of the MSCI semi-annual review. the authorities need to revisit foreign ownership laws which still restrict foreign ownership to 25%. with fund allocations closely tracking the index. Qatar‟s Central Bank (QCB) has introduced sweeping regulations to strengthen the financial sector ahead of the spending spree. and Electricity (includes port) Public Works Authority (Ashghal) Railway 0 10 20 30 40 50 Sources: IMF. These limits do not apply to Qatari government debt. However.8% by end-2012. we estimate additional investment inflows to Qatar could reach USD 4bn.46% to Qatar in the EM index.

5 2013F 4. The programme is focused on the private sector. Aggressive measures to tackle unemployment The government aims to increase hiring of Saudi nationals in the private sector With unemployment estimated by the government at 12% and youth unemployment potentially closer to 30%. In a country Figure 1: Standard Chartered forecasts – Saudi Arabia Healthy outlook ahead 2012 GDP (real % y/y) CPI (% annual average) Policy rate (%)* USD-SAR* Current account balance (% GDP) Fiscal balance (% GDP) 6.com The challenge of employment With the economy in full swing thanks to strong government-driven spending and healthy hydrocarbon dynamics. with the aim of making Saudis the dominant group in the private-sector workforce. as alternative energy sources such as shale oil grow.9 0. in our view.25 400 3. accounting for roughly 850. nationals dominate the public-sector workforce.0 2014F 4.8 4. By contrast.Shaher@sc.75 19. as it will reduce the heavy fiscal burden on the government. especially given that 5mn Saudis will enter the job market between now and 2030.5 0 2011 2012F 2013F 2014F Source: IIF. the private sector is creating new jobs.75 200 18. Measures to address unemployment are needed. Education can play a key role in meeting this challenge.000 of the country‟s 8mn jobs.75 21. and foreign workers dominate the private sector. Saudi Arabia‟s energy subsidies are among the world‟s highest. While this will relieve near-term unemployment pressure. Expatriates working in Saudi Arabia remit USD 30bn annually.2 5. we look at key challenges on the horizon for Saudi Arabia. we assess how Saudi Arabia is positioned to face this challenge. or close to 4% of GDP.25 3.7 10. Finally. and existing jobs held by expatriates eventually shift to the local workforce. it might create challenges in the long run.Standard Chartered Middle East and North Africa Focus Saudi Arabia – Managing the boom Shady Shaher. +9714 5083647 Shady. the government launched a programme in 2011 (called „Nitaqat‟) that incentivises companies to hire Saudi nationals and imposes penalties on those that do not meet targets. To address this issue. in our view. which employs only one in 10 Saudis. according to statements by Labour Minister Adel Fakieh. Policy makers are also discussing adjusting the energy subsidy system to target subsidies towards people who need them. Policy makers want to see more of these jobs filled by Saudis. the government is pushing ahead with its „Saudisation‟ programme (quotas for employing nationals in the workforce).000 800 600 Source: Standard Chartered Research 03 July 2013 .9 0. such as a mismatch between skills and available opportunities.8 4.5 11. This is a positive development. Given strong economic performance in the past few years. Standard Chartered Research 26 Figure 2: Growing net foreign assets USD bn 1.25 3.0 12.0 0. We outline the reasons why we believe the country can maintain its relevance in energy markets. Employment is one. according to Saudi Arabian Monetary Authority (SAMA) statistics.

Saudi Arabia’s position in energy markets Despite the rise of shale oil. saying it reduced fears of excessive reliance on Middle East oil and encouraged governments to pursue “pragmatic and rational” energy policies. Saudi Arabia is likely to retain a significant cost advantage thanks to its much larger conventional fields relative to costlier new sources. and a focus on boosting employment in the short term may only raise challenges in the long term. and it easy to ignore these issues. in our view. the rise in shale oil is likely to ensure that oil remains a key part of the global energy consumption mix. as the current system provides subsidies to people regardless of their economic status. Labour-market deficiencies (education. 03 July 2013 27 .Standard Chartered Middle East and North Africa Focus with one of the world‟s highest population growth rates.3 million barrels per day (mmbd) by 2028 from 3. in our view. A programme of targeted subsidies and penalties on energy wastage would offset the costs of steadily rising energy consumption. Economic and Planning Minister Mohammed al-Jasser recently spoke in the local media of the need to cut energy subsidies. even welcomed the rise of shale oil recently. However. Initial policies to address unemployment are a step in the right direction. We are already seeing encouraging concrete steps in this direction. skills need to match market demand. Asia accounts for 60% of Saudi‟s oil exports. it is difficult for the private sector to attract workers. Saudi Arabia faces the risk that rising energy subsidies will eat into future revenues. Given government plans to build at least 500. Three key factors will help Saudi Arabia to maintain its lead in the energy sector. in our view. according to the state oil producer. are rooted in the economy‟s dependence on commodity exports. The head of the state oil producer. As mentioned above. Finally. not just through infrastructure but also through qualitative improvements. First. energy consumption is likely to rise. especially during economic booms. oil should not be the key driver of the economy. including low private-sector employment and high subsidies. as 70% of energy is consumed by households. this dependence on foreign workers needs to be reduced. attracting foreign investment might be a challenge as investors weigh the costs of doing business in the country. the risk is that a quota system will force companies to hire Saudis regardless of their skill-set.5mmbd today. Other government officials have spoken of introducing a smarter subsidy system that would provide more support to the poor and impose higher energy costs on higher-income groups. Managing subsidy dependency The government spends about 20% of its GDP annually on subsidies Saudi Arabia spends one-fifth of its GDP annually on domestic energy subsidies. Khalid al-Falih. and its share is rising. The country‟s oil consumption is set to rise to about 8. creating productivity challenges. In the long run. With public-sector wages higher than those in the private sector and rising during periods of regional tensions. but both supply. this is likely to offset the risk of weaker demand from slowergrowing Europe and the increasingly energy-independent US. a key long-term requirement for Saudi Arabia is to make education a priority.000 housing units over the next five years. Second. Second. private-sector employment needs to be incentivised. skills) need to be addressed. Changing these dynamics will be challenging. Finally. The long-term challenges discussed above. Saudi Arabia is positioned to remain a key global energy exporter.and demand-side measures are needed. First.

67 12. inclusive of both Dubai and Abu Dhabi.8 8. Real GDP is estimated to have grown by 4.000 2. Growth in the UAE is robust and broad based. The non-hydrocarbon sector should be the main growth engine over the medium term.3% in 2012 In our view.67 16.22% in Q12013 The real-estate sector. Dubai has positioned itself to take advantage of higher trade flows within the region and accounts for 50% of all GCC trade flows. Real-estate market posts a strong recovery Land transactions increased by 78% in 2012.0 8.000 0 2005 2006 2007 2008 2009 2010 2011 2012 Sources: RERA.6 2.000 5.67 14. GDP growth will moderate to 3.000 3.9%.com Growth and risks Latest government data shows that the economy expanded more rapidly than expected in 2012.0 3.0 3. Standard Chartered Research 28 Figure 1: Standard Chartered forecasts – UAE Growth to moderate in 2013 2012 GDP (real % y/y) CPI (% annual average) Policy rate (%)* USD-AED* Current account balance (% GDP) Fiscal balance (% GDP) 4. This time.1% y/y in 2013 – from 5. international passenger traffic in Dubai reached 57. in many locations to pre-crisis levels. According to the Real Estate Regulatory Agency (RERA) the market rallied in 2012. fiscal and monetary policy tend to be expansionary. rentals for two-bedroom apartments rose by c. which accounts for 59% of GDP. Oil output is likely to remain on par with 2012 production levels (estimated at 2. Government investment spending.200. Significant financial-sector reforms have led to the UAE MSCI being upgraded to emerging markets status. which accounts for 13% of GDP.3% in 2012.5mn). Key sectors include tourism and trade. Standard Chartered Research 03 July 2013 .Standard Chartered Middle East and North Africa Focus UAE – Robust and broad-based growth Sayem Ali. fiscal policy is controlled. from 10% of GDP in 2011. which can exacerbate the boom and inflationary pressures. a milestone for the markets.8 2013F 3. from 4. +92 21 3245 7839 Sayem.5 1. when hydrocarbon prices and production are high. We expect GDP growth to moderate to 3. At times of economic boom. to slow down to 2. as is monetary expansion. declined sharply to 7% of GDP in 2012.22% y/y in Q1-2013.8mn in 2012.5% in 2013. The recovery is driven by improved fundamentals and actual purchases of completed properties rather than speculative buying which tends to be mostly related to off-plan transactions.3 1.5% in 2013.9 1.0 Sources: IMF. We expect the hydrocarbon sector. however.000 1. The rapid recovery of the housing market.000 4. with land transactions rising 78% to more than 3. from 4. primarily owing to higher oil production and a recovery in construction and real estate.0 3.5 2. One of the problems in economies that are dominated by hydrocarbons is that policy tends to be pro cyclical.0 7. overtaking Hong Kong (56. Similarly. is giving rise to concerns of possible overheating.7mn bpd). against an earlier projection of 3. It noted that rental prices for two-bedroom apartments increased by c.Ali@sc.3% in 2012. has been a major drag on growth since the market slumped in 2008. Figure 2: Dubai land transactions pick up Number of transactions 2014F 3.5 1.0 6.2% in 2012.

Standard Chartered Middle East and North Africa Focus Banks exposure to the real estate market has declined following central bank regulations introduced in December 2012 to limit this. Figure 3: The economy has recovered but GDP growth is likely to moderate Annual percentage change 10 8 6 4 2 0 -2 -4 -6 2004 2005 2006 2007 2008 2009 Hydrocarbon GDP (RHS) 2010 2011 2012 2013F 0 Real GDP (LHS) Non-Hydrocarbon GDP (RHS) 15 10 5 -5 -10 Sources: IMF. The markets rallied on the news: the Dubai Financial Market General Index (DFMGI) traded 2% higher at 2. The reclassification will take place in May 2014 as part of the MSCI semi-annual review. notably implementation of the delivery-versus-payment system which enables investors to be paid cash if a security is unavailable for delivery on settlement day. we estimate additional investment inflows to the UAE could reach c. Listings on the bourse are limited and the giant state-owned oil companies are not listed. Dubai Financial Market and the Abu Dhabi Securities Exchange. we estimate additional investment inflows to the UAE could be c. Bad loans (NPLs) climbed to 8. namely NASDAQ Dubai. the central bank has left the door open to relax the mortgage laws to support the real-estate market recovery. Market development would also be supported by the merging of the three UAE bourses. The central bank regulations aim to reduce bank exposure to mortgages for expatriates to 50% of the value of a first home and 40% for the second.392. However. with fund allocations closely tracking the index. The upgrade should bring large foreign investment and drive valuations higher. Standard Chartered Research 03 July 2013 29 . MSCI announced its decision to reclassify the MSCI UAE index as an emerging markets (EM) index. MSCI EM funds manage around USD 7tn in assets.4% to the UAE in the EM index. The retail market is not yet fully developed due to a lack of insurance and pension funds. MSCI to incorporate the UAE in the EM Index in May 2014 MSCI has allocated a weight of 0.4% to UAE in the EM index. India. MSCI has allocated a weight of 0. encouraging local companies to conduct IPOs and raise capital for new investment projects. Improved market liquidity and significant reforms by UAE authorities to enhance transparency and protect investors led to the upgrade.USD 4bn On 11 June.7% in 2012. This is a milestone for the UAE markets and puts them in the same investment grade as China. The UAE would benefit from further market reforms. primarily due to this exposure.85 on 19 June. Turkey and other high-growth emerging markets. Limits also were tightened for UAE citizens to 70% of the value of a first home and as much as 60% for a second.USD 4bn. an upgrade from its previous frontier markets status.

7 4.0 23.75 1.4 5.00 3.7 2.0 10.4 -12.5 -13.0 -0.0 4.83 0.5 96.5 -3.5 1.7 -0.6 2.6 2.2 4.4 -9.6 -1.0 5.400 21.1 0.00 6.9 5.6 19.8 2.40 2.1 40.5 5.6 4.67 0.9 2.5 -2015 -0.7 -1.5 1.5 -4.0 -5.0 3.1 4.8 3.5 -8.4 5.6 3.98 0.25 1.0 11.8 7.3 2.10 6.0 9.0 4.5 6.0 5.5 508.6 6.0 7.0 1.5 4.9 1.4 2.27 1.6 3.9 3.4 6.2 6.8 2.3 2.4 -3.02 485 1.0 -9.5 -1.880 2.8 11.4 -3.5 1.8 1.3 9.0 6.9 2.10 96.5 3.6 2.5 3.0 7.8 3.0 -1.5 10.5 6.39 3.7 3.1 6.0 2.8 -7.4 1.5 4.5 -4.0 -2.5 -12.50 1.8 -3.6 8.4 2.0 -5.2 6.3 4.6 3.0 6.5 6.7 1.3 -4.2 7.0 3.0 5.660 -9.2 3.3 7.0 4.5 4.5 0.0 6.5 6.4 2.0 4.2 7.0 10.00 480 1.3 -1.0 2.0 6.13 6.1 4.5 496.0 5.0 7.120 7.0 8.5 -2.26 1.0 10.6 5.2 1.64 3.0 -3.5 3.8 6.0 -2.0 8.5 5.700 3.1 2.9 2.0 2.71 0.07 41.8 3.8 5.0 7.52 1.38 7.6 8.39 3.1 6.800 3.9 5.50 7.0 3.1 -0.5 7.6 5.3 2.6 2.65 2.00 9.4 2.00 -0.8 3.92 0.8 Current account (% of GDP) 2011 -0.7 2014 1.3 -3.9 0.6 -3.0 6.0 22.0 -2.6 4.0 -4.25 77.1 4.0 2.8 -0.5 2.0 4.0 0.8 -2.0 4.00 30.3 4.0 29.8 3.7 3.6 2.2 2.5 6.1 -2.2 4.9 6.2 4.0 7.5 35.0 30.5 7.7 1.2 3.500 0.6 15.6 6.0 -3.6 4.25 1.65 5.9 6.3 2.5 8.16 89.0 1.0 -9.80 3.76 N.8 -4.07 500 1.A.5 8.20 1.A.00 41.0 29.0 2.9 16.1 Real GDP grow th (%) 2012 1.4 6.5 6.0 3.2 -0.7 9.3 3.5 -11.6 6.5 5.3 3.6 13.7 2. 1.8 2.0 -2.0 3.8 8.4 3.2 4.00 4.02 1.15 6.7 8.03 -9.6 504.0 8.0 1.0 -9.4 6.9 1.1 5.5 6.5 4.9 5.2 5.9 2.3 3.4 2.6 -12.1 -2.6 8.9 -3.71 0.4 6.9 4.5 -1.7 3.4 -3.500 159.2 7.71 0.8 8.5 1.5 6.3 2013 1.9 9.3 1.1 3.Standard Chartered Middle East and North Africa Focus Forecasts – Economies and FX Country 2011 Majors US^ Euro area Japan UK Canada Sw itzerland Australia New Zealand Asia Bangladesh* China CNH Hong Kong India* Indonesia Malaysia Pakistan* Philippines Singapore South Korea Sri Lanka Taiw an Thailand Vietnam Africa Angola Botsw ana Cameroon Côte d'lvoire The Gambia Ghana Kenya Nigeria Sierra Leone South Africa Tanzania Uganda Zambia MENA Bahrain Egypt* Jordan Kuw ait* Lebanon Oman Qatar Saudi Arabia Turkey UAE Latin Am erica Argentina Brazil Chile Colombia Mexico Peru Global 1.9 2.0 -9.0 496.2 6.0 -7.7 8.1 21.2 8.A.2 -1.850 12.7 2.0 -16.1 3.1 -2.0 7.2 103.5 8.5 3.8 12.9 1.4 5.5 2.0 6.0 88.0 77.0 3.64 3.4 6.40 -14.3 17.0 1.5 15.0 3.9 -13.8 -2.6 6.8 -1.0 14.5 4.750 5.4 4.0 3.25 -2.6 4.0 8.0 -2.2 5.3 2.25 0.4 8.5 7.8 4.080 123.62 0.32 96.5 2.3 7.00 2.5 3.88 0.3 6.4 3.80 3.05 2.5 10.0 -2.3 10.0 3.7 1.8 -2.9 -3.5 7.5 -3.0 4.3 7.9 2.8 3.0 3.9 28.0 0.7 1.0 -2.6 6.0 4.9 -0.5 3.0 -9.1 7.4 4.3 11.00 6.9 2.5 6.00 162.4 9.800 3.0 3.7 -5.5 0.7 3.780 60.10 7.0 10.9 6.9 2.98 0.5 6.75 1.1 3.790 5.2 0.6 6. Pakistan.9 -6.29 97.06 88.6 8.0 0.0 14.8 -1.5 16.A.5 0.1 4.1 2.8 -5.0 2.6 3.9 -4.5 6.0 4.8 5.9 3.0 4.0 2014 1.9 2.6 4.10 97.1 4.7 3.3 3.0 21.0 2.7 -7.810 58.0 5.2 3.8 -5.9 7.8 126.2 3.8 2.0 18.0 4.8 -13.9 6.7 3.8 3.5 2.9 4.2 0.9 2.1 3.0 5.08 41.0 -2.0 9.2 2.5 -11.0 -11.0 1.0 6.4 5.3 2.0 1.0 3.6 2.5 2.50 107.9 6.0 3.3 4.1 -6.30 30.0 -2.2 7.8 5.03 0.6 10.3 8.7 3.4 1.5 5.5 6.4 6.75 1.05 -10.0 5.3 -3.4 -2.2 4.0 14.2 12.3 6.3 5.0 24.660 2.0 3.2 -50.7 6.00 6.0 1.8 2.0 5.9 4.2 0.5 1.9 2.4 4.5 -2.0 4.27 0.05 96.3 2.45 2.2 -2.8 2.4 25.0 1.5 6.5 3.5 2.2 0.0 3.2 6.9 -13.85 3.76 Q3-13 FX Q4-13 Q1-14 Q2-14 3.0 3.0 4.0 0.500 0.5 2.8 2.7 1.8 3.71 0.2 4.9 2.3 4.6 5.7 6.00 106.8 4.4 9.2 3.2 1.0 5.5 10.5 4.0 5.5 36.0 2.9 0.9 2.4 3.2 4.5 4.9 6.8 5.4 3.9 6.6 7.0 5.7 6.5 3.3 1.4 3.6 1.0 158.3 1.1 7.6 7.5 4.8 1.3 7.140 76.2 11.9 7.9 7.7 21.0 35.7 5.0 4.5 -5.4 -1.5 -3.800 61.4 3.0 2.9 2.5 29.0 -1.8 5.4 8.3 4.6 7.5 28.4 3.5 6.7 5.4 8.00 77.0 18.080 7.4 5.8 4.8 -2014 -0. July in Bangladesh.8 7.8 6.300 21.5 5.5 2.85 0.0 7.3 -1.7 7.8 1.2 -9.6 5.30 102.765 -3.9 2.5 3.390 10.3 3.0 5.6 7.5 6.00 4.38 7.0 9.6 10.9 2012 1.2 1.8 2.6 3.0 6.9 3.0 6. 1.9 3.9 -3.0 3.1 2.8 7.0 1.98 508.5 -3.90 7.8 1.8 7.2 12.9 6.2 4.5 1.7 8.650 2.500 -1.0 34.0 5.5 16.5 5.3 6.4 3.30 6.0 -8.5 5.8 6.4 -7.5 5.5 6.380 10.9 -5.0 -2.8 4. and Egypt ^ Inflation: Core PCE deflator used for US Source: Standard Chartered Research 03 July 2013 30 .0 1.5 2.6 12.0 0.2 4.03 0.7 8.7 -3.00 105.5 3.75 * Fiscal year starts in April in India and Kuwait.03 490 1.7 7.0 30.8 1.24 1.7 9.1 -14.9 2.7 3.30 2.2 7.7 2.5 4.7 8.8 18.5 27.03 -3.9 3.050 7.4 10.7 12.350 -5.0 4.9 -9.0 -14.5 0.69 504.7 -3.95 0.0 6.0 -2.8 -2.9 20.5 6.0 9.2 3.0 3.5 1.7 -0.03 0.6 5.0 6.0 -1.2 23.5 5.0 -2.7 2.0 8.27 1.8 -1.48 1.8 5.0 2.5 4.5 4.0 6.4 -4.3 0.1 7.3 12.5 7.2 4.2 13.0 -13.0 7.7 0.4 7.5 2.0 5.720 3.5 -3.50 9.8 7.3 4.0 7.7 -7.5 25.6 8.2 2.5 3.5 9.8 -3.5 -5.4 2.9 6.2 5.2 5.8 0.39 3.8 1.7 3.5 -2.0 4.2 -3.0 -3.78 N.30 1.0 10.0 4.0 3.9 12.7 5.1 6.9 6.4 3.5 4.5 3.5 7.8 3.6 1.1 -1.0 1.8 7.6 14.80 -1. 1.7 5.1 13.3 4.64 3.0 32.00 -8.770 5.7 6.0 4.50 N.665 2.100 -3.0 2.0 25.26 2.04 0.3 2015 1.1 4.2 -2.8 2.3 5.5 4.350 21.00 1.0 3.0 -17.20 0.1 Inflation (yearly average %) 2011 1.0 1.3 1.1 7.0 -2.80 160.5 4.9 -2012 -1.3 6.0 5.5 6.5 7.9 9.0 1.5 -4.7 10.5 3.15 0.6 36.67 5.3 6.39 3.0 3.9 7.9 4.0 -7.1 1.0 0.4 6.900 10.5 3.0 2.0 1.50 4.0 4.5 4.080 124.5 7.7 6.6 1.8 4.2 3.9 3.5 -10.00 1.9 1.5 -8.64 3.5 1.8 2.6 10.75 1.7 3.0 5.10 89.00 2.4 12.5 5.90 30.3 41.2 3.0 -5.4 -2.3 5.0 -3.0 19.7 10.6 6.7 8.5 2.8 4.8 1.2 1.5 2013 1.0 2.38 7.1 1.2 8.9 2.0 2.3 1.85 2.9 7.4 -2.0 4.4 -3.5 3.2 5.5 -11.80 N.8 2.0 4.1 -6.0 -3.3 8.7 8.2 7.3 3.1 -0.27 102.67 0.5 5.4 9.67 0.0 5.0 -17.6 5.1 -0.5 4.0 7.8 3.0 -18.3 3.0 12.86 516.0 5.0 3.7 -5.9 3.7 5.1 2.5 6.9 3.2 5.2 9.27 1.50 20.0 7.0 2.820 11.9 35.38 7.360 10.7 1.850 11.4 2.9 4.0 0.500 0.5 30.07 6.5 4.2 2.0 -10.4 3.80 3.0 3.5 2. 1.0 3.75 1.3 -16.0 1.3 7.5 5.0 -6.5 0.2 0.0 -0.4 -0.8 18.0 5.1 1.5 30.1 7.0 6.4 10.5 2.5 1.46 1.3 18.5 59.1 2.99 2.8 -2013 -0.4 4.3 3.0 3.63 6.4 6.6 -3.8 3.5 516.0 10.4 1.50 2.9 6.5 5.20 0.8 -6.0 2.10 -2.4 4.110 125.4 2015 1.7 11.0 -2.47 1.1 5.90 2.3 1.3 7.0 -2.0 3.8 8.8 2.7 1.0 1.1 2.5 2.4 6.8 1.8 2.5 2.5 3.70 5.6 1.00 9.

25 0.70 13.50 4.09 19.75 7.38 2.72 Q3-13 % 0-0.42 2.50 0.50 2.88 0.75 7.75 7.85 6.50 2.00 7.25 0.10 3.50 3.60 7.44 7.10 0.75 3.90 2.75 6.50 8.40 2.56 6.69 3.00 1.88 0.50 2.51 2.25 2.21 3.00 3.30 0.50 0.39 14.88 0.35 3.35 2.20 17.61 0.75 11.50 0.30 3.50 2.00 4.39 2.00 9.22 1.50 0.00 7.00 0.88 1.42 2.00 17.75 15.70 2.70 16.30 4.75 5.35 3.45 3.10 1.00 7.23 7.50 5.50 0.00 3.20 7.25 7.30 1.60 3.00 13.45 3.00 3.20 5.40 2.00 3.75 2.00 5.88 1.00 1.50 6.75 5.37 3.50 18.00 2.25 12.25 1.00 5.45 2.25 0.90 14.88 1.28 2.40 2.65 3.80 11.00 6.20 3.50 0.00 1.35 8.50 12.40 2.02 1.30 7.25 4.51 0.60 7.80 5.00 3.25 3.00 2.70 3.50 0.40 2.55 3.50 0.00 11.00 11.65 Q4-13 % 0-0.50 Q2-14 % 0-0.44 1.50 9.00 23.20 7.00 5.50 1.60 16.10 6.75 6.25 0.70 7.55 Q1-14 % 0-0.65 2.20 2.22 7.50 8.50 1.50 8.75 3.40 2.30 7.78 7.00 19.28 2.20 1.00 6.60 3.10 6.00 0.50 0.50 2.00 5.75 0.40 13.40 2.00 4.50 Source: Standard Chartered Research 03 July 2013 31 .00 7.80 4.70 3.00 10.55 7.00 5.25 3.11 7.10 0.45 3.26 7.38 2.25 2.73 0.50 0.50 5.25 7.55 2.20 7.50 4.75 3.11 11.00 7.50 16.50 4.00 8.20 3.25 7.50 4.75 12.00 11.00 2.50 6.00 2.20 1.00 12.75 7.00 6.50 13.27 2.Standard Chartered Middle East and North Africa Focus Forecasts – Rates End-period United States Policy rate 3M LIBOR 10Y bond yield Euro area Policy rate 3M EURIBOR 10Y bond yield United Kingdom Policy rate 3M LIBOR 10Y bond yield Australia Policy rate 3M OIS China Policy rate 7-day repo rate 10Y bond yield Hong Kong 3M HIBOR 10Y bond yield India Policy rate 91-day T-bill rate 10Y bond yield Indonesia Policy rate FASBI rate 10Y bond yield Malaysia Policy rate 3M KLIBOR 10Y bond yield Philippines Policy rate 3M PDST-F 10Y bond yield Singapore 3M SGD SIBOR 10Y bond yield South Korea Policy rate 91-day CD rate 10Y bond yield Taiwan Policy rate 3M TAIBOR 10Y bond yield Thailand Policy rate 3M BIBOR 10Y bond yield Vietnam Policy rate (Refi rate) Overnight VNIBOR 2Y bond yield Ghana Policy rate 91-day T-bill rate 5Y bond yield Kenya Policy rate 91-day T-bill rate 10Y bond yield Nigeria Policy rate 91-day T-bill rate 10Y bond yield South Africa Policy rate 91-day T-bill rate 10Y bond yield Current 0-0.75 3.28 2.00 8.50 2.25 2.40 1.28 2.35 3.96 1.50 4.00 7.50 2.35 3.50 4.35 3.00 15.25 0.00 5.50 2.50 0.50 6.25 0.25 3.20 0.50 2.38 7.15 2.25 6.00 20.25 7.75 0.56 7.50 9.50 0.20 17.13 1.00 3.00 7.85 12.40 2.70 15.00 2.00 4.55 2.40 2.50 2.85 3.50 0.75 0.25 2.00 17.45 2.60 0.90 13.64 6.50 4.70 0.50 14.60 2.75 1.90 0.30 2.80 0.00 3.20 3.50 3.00 0.

4 +0.3 600 660 1.483 758 1.7 -1.6 +1.669 645 1.9 715 1.400 2.5 -12.6 -14.013 6% 114 -9.400 750 1.7 680 664 648 679 638 622 597 602 - 606 606 605 562 - 576 559 598 600 - 759 564 620 650 - 724 666 820 654 625 613 612 611 - 734 576 669 651 - 1. USc/lb TOCOM RSS3 rubber#.6 -4.515 12% 2.0 -37.9 -12.201 9% 7% 5% 2.4 -0.2 111.9 -7.605 19.4 -5.600 51 9% 10% 2. USD/t) HRC.346 2.1 -12.0 +29.0 -17.2 -19.7 +15.800 53 16% 17% 2. USD/cwt Thai B rice 100%. 6th contract.0 +8.5 - -8.8 -4.2 -6.7 -2.400 2.3 -0.13 vs Fwd Q4 . USD/t LIFFE coffee.4 -18. US1 HRC.4 16.9 15.800 25 21% 34% 37% 33% 2.6 -3.3 +4.1 +19.1 -17.3 -3.000 2. USc/lb NYBOT sugar.100 7.7 +9.360 16.735 2.5 17.439 724 16 613 6% 3% 3% 0% - 685 1.3 -14.6 +23.4 303. USc/lb) 2. Source: Bloomberg.250 2. USD/t *** NYBOT coffee.7 108.058 22.534 667 16 600 +0.8 148 124 - 112 - 127 - 127 - 129 128 - 120 - 639 614 589 605 -3.8 20.113 1.14 vs Fwd A F % F % F % F % 2012 A 2013 F vs Fwd % 2014 vs Fwd F % Energy Crude oil (nearby future.838 -3.227 632 1.539 50 7% 5% 2.1 +47.000 14% 11% 8% 25% 22% 9% 2.750 50 15% 10% 2 2.2 -0.2 -0.2 -14. China1 Precious metals (spot.7 +2.3 -15.0 +11.2 +1.7 -7.294 2. USc/bushel CBOT rice.632 741 1.1 +5.100 3% 1% 2% 7% 5% 3% 2.016 175 21.900 7.819 54 16% 20% *weekly quote **monthly average ***10 tonne contract.0 2.707 118 17 227 84 -2.8 -24.4 -3.500 2.3 -5.4 -2.4 -1.1 +4.613 2.458 51 2.1 +2.500 2.6 18.MYR/t) Soyoil (CBOT.448 739.5 -9.4 -15.9 96 109 106 2% 5% - 99 105 103 11% 8% - -6.000 24.000 24.6 -16.6 -28.8 -14.9 +4.0 -1.0 1 95.7 +6.000 7.2 -13.4 -11.7 -16.0 82 2.1 -3 17 17 -2 -6 14 17 -13 - -2 18 18 -1 -7 15 17 -11 - 2 19 19 -1 -6 14 17 -13 - - - -5.3 -5.952 2.8 -13.632 30.2.200 17.000 24.5 +2.2 +1.100 140 18 320 90 8% 22% 18% 4% 6% 2.500 2.8 17.13 Q2 . USD/tonne*1 Edible oils (nearby future) Palm oil (MDV.3 -12.500 800 1.9 589 663 1.800 25 22% 34% 37% 34% 1.650 25 22% 26% 26% 34% 1.100 150 20 315 90 10% 20% 20% 11% 10% 2.100 145 19 320 80 8% 21% 19% 5% -4% 2.1 2.052 7.031 13.6 -9.5 16.4 +7.300 18% 25% 16% 30% 24% 20% 17.052 1.400 740 1. 62% iron content.2 -20.9 +5.305 19 -10.0 - -13.6 274.500 850 1.4 -9.4 -4.350 49 1% 0% 2.3 -8.4 -313.Standard Chartered Middle East and North Africa Focus Forecasts – Commodities Market close 27-Jun-13 m/m % Change YTD % y/y % Q1 .1 +2.840 13% 23.583 26 8% 11% 11% 13% 1.100 150 21 323 90 9% 18% 17% 17% 13% 665 1.9 18.000 2.5 -13.3 18.200 8.552 31.2 -174.3 14.5 0.500 2.4 -7.010 7.500 23 -1% 4% 2% -1% 1.13 vs Fwd Q3 .2 -28.9 -2.583 21.0 +1.9 15.8 -12.5 -26.1 +11.7 +1675.3 80 2. USc/bushel CBOT soybeans.300 20% 26% 17% 31% 24% 22% 2.8 1.9 -21.7 -25.350 2.0 +13.177 2.300 1.900 16.1 -2.2 86 87 93 82 83 87 1% 4% - 84 83 86 12% 9% - 87 85 90 13% 7% - 87 88 92 9% 7% - 93 94 97 85 84 89 6% 5% - 88 90 91 7% 5% - 1.1 -29.6 +65.0 - - - 78 75 82 -5.7 99.0 -0.9 -8.400 18.000 2.4 +16.180 1.5% barges (USD/b)1 Coal (USD/t) API4 API2 globalCOAL NEWC*1 Metals Base metals (LME 3m.965 2.056 141 18 315 84 4% 11% 9% 2% 0% 2.5 13.8 -8.1 0. USc/lb Grains & oilseeds (nearby future) CBOT corn (maize).6 15.8 -21.975 135 17 315 85 1% 3% 2% -1% 0% 2.4 18.350 740 15 630 19% 6% 4% -8% - 694 1.0 -41.3 -13.2 15.9 -74.4 +5.039 7.5 -5.700 1.370 47 -0.5 101. Standard Chartered Research 03 July 2013 32 # .2 1.6 -6.2 19.550 24 14% 18% 19% 29% 1. cost and freight at China’s Tianjin port.350 2. USD/t) Aluminium Copper Lead Nickel Tin Zinc Iron ore (USD/t) Iron ore2 Steel** (CRU assessment.3 -10.948 2.500 2.074 17.7 -21.13 vs Fwd Q1 .3 -8.200 8.375 748 15 630 23% 9% 4% -9% - 2.0 -13.305 1.0 -4. Japan1 HRC.4 -8.460 700 16 600 0% -1% 1% 0% - 650 1.9 94 113 108 93 106 103 -2% 2% - 98 110 107 3% 9% - 98 108 105 5% 8% - 98 105 102 7% 6% - 94.0 -7.200 17.7 -2.1 1.3 -6.2 -2. Europe1 HRC.2 -5.3 +23.450 725 16 625 12% 5% 7% 2% - 625 1.2 -12.047 143 18.6 -2. USD/oz) Gold (spot) Palladium (spot) Platinum (spot) Silver (spot) Agricultural products Softs (nearby future) NYBOT cocoa. JPY/kg Fibres NYBOT cotton No.0 +0.6 -8. Indian origin.000 24. no forward price comparison available.2 -14.9 -0.2 -7.771 6.2 18.1 -17.1 -9.2 +4.500 850 1. USD/b) NYMEX WTI ICE Brent Dubai spot 1 Refined oil products cracks and spreads Singapore naphtha (USD/b)1 Singapore jet kerosene (USD/b)1 Singapore gasoil (USD/b)1 Singapore regrade (USD/b)1 Singapore fuel oil 180 (USD/b)1 Europe jet (USD/b)1 Europe gasoil (USD/b)1 Rotterdam 3.100 17% 15% 8% 24% 22% 13% 2.400 18.0 15.959 53 2.2 -50.400 730 16 625 15% 10% 5% 0% - 660 1.464 750.000 24.2 -2.750 2. USc/bushel CBOT wheat.

8 8.3 6.4 3.8 2.0 1.7 2.4 5.1 3.3 8.6 3.4 3.7 2.5 3.6 -0.3 3.8 3.9 4.5 4.5 Q3-11A 1.5 -0.5 1.6 -0.1 2.5 2.1 4.0 0.5 3.8 6.8 5.0 3.1 2.3 1.5 4.0 1.4 Q3-12A 1. Kuwait.9 2.6 8.6 3.0 2.7 -3.5 4.5 4.0 2.1 2.0 5.4 2.0 5.5 2.4 4.2 2.0 7.7 8.1 0.6 5.6 Q1-13A 1.8 6.4 Q4-12A 1.1 6.4 3.0 3.7 2.7 -0.5 ^q/q SAAR *Fiscal year starts in April.8 3.2 0.5 8.5 Q3-13F 1.5 3.2 -0.5 -7.2 2.0 -0.4 3.9 8.8 -1.8 11.2 2.0 Consumer price inflation (y/y) Q1-11A US^ Euro area Japan UK Bahrain Egypt* Jordan Kuwait Lebanon Oman Pakistan Qatar Saudi Arabia UAE 1.1 6.5 3.9 2.7 -0.8 1.3 4.5 0.6 5.6 2.5 4.0 2.8 4.3 3.9 3.5 5.8 5.1 4.8 2.2 3.5 3.0 3.6 11.2 3.7 3.4 2.2 Q2-12A 1.2 4.4 3.4 4.9 4.0 5.6 2.0 8.4 3.0 2.7 -0.8 4.0 1.0 1.8 3.0 2.1 2.5 5.6 6.5 1.1 -0.2 5.6 4.2 4.4 0.0 4.6 2.5 -0.0 4.0 6.6 0.7 2.1 3.9 5.6 2.3 2.5 2.0 8.6 2.7 5.5 5.6 Q2-13F 1.5 4.8 3.0 2.0 4.2 5.4 10.5 4.0 2.8 5.7 0.0 4.7 -0.3 5.3 5.0 9.9 -4.1 3.9 2.5 5.0 5.4 -1.6 Q3-12A 3.8 3.7 0.8 8.2 5.2 1.0 Q1-12A 1.0 5.3 5.5 8.5 1.5 2.4 2.0 3.6 3.0 Q3-11A 1.8 3.4 8.3 Q2-11A 2.5 Q4-13F 1.8 5.0 Q2-11A 1.0 9.6 3.7 1.4 -2.4 2.7 -0.0 1.2 1.3 2.4 0.2 6. July Egypt and Pakistan Source: Standard Chartered Research 03 July 2013 33 .5 4.3 -0.1 0.6 3.2 3.9 2.8 1.0 6.6 0.6 Q1-12A 2.1 0.5 2.5 2.0 4.5 4.5 2.0 4.5 4.3 4.3 4.6 9.5 Q2-13F 1.1 10.0 4.6 3.1 1.Standard Chartered Middle East and North Africa Focus Quarterly forecasts Real GDP growth (y/y) Q1-11A US^ Euro area Japan UK Bahrain Egypt* Jordan Kuwait* Lebanon Oman Pakistan* Qatar Saudi Arabia UAE 0.1 4.0 6.1 4.5 2.6 Q1-13A 1.8 3.2 2.0 0.0 4.3 5.3 4.7 0.8 Q3-13F 2.8 1.8 3.9 0.1 2.0 4.4 5.8 6.5 8.2 1.8 6.8 6.5 8.9 5.6 1.8 2.0 4.9 3.6 9.2 2.1 3.0 4.0 -0.4 3.8 5.8 5.5 8.6 3.8 7.2 2.0 3.5 3.5 4.4 2.9 5.5 1.5 3.1 2.6 Q2-12A 1.3 1.5 2.5 2.0 Q4-11A 1.0 4.3 2.6 4 3.5 Q4-11A 4.7 -3.4 1.9 0.5 3.8 1.8 4.7 0.1 1.0 5.1 5.2 1.6 2.0 2.2 3.6 5.0 6.7 2.6 Q4-12A 0.5 2.0 3.1 0.0 1.4 2.6 3.0 2.2 4.9 4.3 4.5 5.4 0.0 6.0 10.6 0.3 2.2 3.2 5.2 3.7 5.8 6.8 2.0 Q4-13F 2.3 4.1 3.5 3.6 5.8 2.8 4.5 2.0 1.3 4.8 3.

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