Arab states warned against complacency over debt

Jihad Azour, director of the IMF’s Middle East and Central Asia department, said higher oil prices should spur a change in the region’s fortunes. (AP)
Updated 02 May 2018
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Arab states warned against complacency over debt

  • Oil prices have reached around $75 a barrel from under $30 a barrel in early 2016
  • After the GCC saw their economic growth shrink by 0.2 percent last year, their economy is expected to return to growth in 2018

DUBAI: The International Monetary Fund on Wednesday warned Arab states against complacency over a looming debt crisis, urging continued economic reforms despite a rise in oil prices.
Crude prices have rebounded in the region thanks to a deal by producers to trim production, but the IMF said such a change in fortunes should not get in the way of overhauling state spending.
“Required reforms include further steps toward full elimination of energy subsidies, and changes to pension and social security systems — including revisions to retirement age and benefits,” the IMF said in its Regional Economic Outlook for May.
Jihad Azour, director of the IMF’s Middle East and Central Asia department, said higher oil prices should spur change.
“We should not be complacent ... oil prices are going up. That definitely does not mean that we should not introduce the reforms. On the contrary, the current environment offers the opportunity to accelerate some of these reforms,” Azour said.
Oil prices have reached around $75 a barrel from under $30 a barrel in early 2016.
Overall growth in the Middle East and North Africa (MENA) region, which includes all Arab countries and Iran, was forecast by the IMF to reach 3.2 percent this year compared to just 2.2 percent in 2017.
The partial recovery in oil prices will be a boost for the Gulf Cooperation Council states — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE — which supply almost a fifth of global crude oil.
After the GCC saw their economic growth shrink by 0.2 percent last year, impacted by a 0.7 percent contraction by the Saudi economy, their economy is expected to return to growth in 2018.
The Council’s economy is forecast to grow by 2.2 percent this year and 2.6 percent in 2019, the IMF said.
Following the oil price slump in mid-2014, GCC members undertook fiscal measures and reforms to cut public spending and boost non-oil revenues.
Azour said that Saudi Arabia’s economic consolidation measures to cut a persistent budget deficit and diversify the economy away from oil remains the correct policy.
“The current strategy that is based on reaching a balanced budget by 2023 is the right one,” he said.
Despite the improved economic forecast, the IMF estimated cumulative overall fiscal deficits in the region to be $294 billion in 2018-22.
Around $71 billion of government debt is expected to mature during the same period.
“The rapid buildup of debt in many of them (MENA countries) is a cause for concern. Debt has increased by an average of 10 percentage points of GDP each year since 2013, with countries financing large fiscal deficits,” the IMF report said.
An impending increase in interest rates, making borrowing more expensive, will complicate the problem, it added.
According to the IMF, the economy of oil-importers should grow by 6.2 percent annually to maintain unemployment at the current rate of 10 percent.
MENA countries need to create 25 million new jobs over the next five years, Azour said, while warning of the negative consequences of unemployment coupled with rising debt levels.
“The average debt in the region for oil-importing countries exceeds 80 percent,” of gross domestic product (GDP), he said, stressing such a figure is “beyond what is acceptable.”


T-Mobile, Sprint see Huawei shun clinching US deal -sources

Updated 16 December 2018
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T-Mobile, Sprint see Huawei shun clinching US deal -sources

WASHINGTON/NEW YORK: T-Mobile US Inc. and Sprint Corp. believe their foreign owners’ offer to stop using Huawei Technologies equipment will help with the United States clearing their $26 billion merger deal, sources said, underscoring the lengths to which Washington has gone to shut out the Chinese company.
Like all major US wireless carriers, T-Mobile and Sprint do not use Huawei equipment, but their majority owners, Germany’s Deutsche Telekom AG and Japan’s SoftBank Group Ltd, respectively, use some Huawei gear in overseas markets.
People familiar with the deal between T-Mobile and Sprint, the third and fourth largest US wireless carriers, said US government officials had been pressuring Deutsche Telekom to stop using Huawei equipment, and the companies believed they had to comply before a US national security panel would let them move forward on their deal.
Both Deutsche Telekom and Softbank were reported this week to be seeking to replace the world’s biggest network equipment maker as vendor. Now, T-Mobile and Sprint expect the US panel, called Committee on Foreign Investment in the United States (CFIUS), to approve their deal as early as next week, the sources said.
The sources, however, cautioned that negotiations between the two companies and the US government have not been finalized yet, and any deal could still fall through. They asked not to be identified because the matter is confidential.
Sprint, T-Mobile, Deutsche Telekom, SoftBank and CFIUS declined to comment. Huawei did not respond to a request for comment.
The US government and its allies have stepped up pressure on Huawei over concerns that the company is effectively controlled by the Chinese state and its network equipment may contain “back doors” that could enable cyber espionage, something which Huawei denies. Several telecom operators in Europe and Australia have said they will exclude the Chinese firm from their fifth-generation (5G) mobile networks.
The pressure on Huawei has already heightened tensions between the United States and China over trade. Earlier this month Meng Wanzhou, Huawei’s chief financial officer and daughter of its billionaire founder, was arrested in Canada on a US extradition request. US prosecutors have accused her of misleading multinational banks about Huawei’s control of a company operating in Iran. China has asked for her release.
In an interview with Reuters earlier this week, US President Donald Trump drew a connection between the Huawei CFO extradition case and his administration’s trade row with China, saying he would be willing to intervene if it helped resolve the dispute or serve US national security interests.
The United States has been stepping up its targeting this year of both Huawei and ZTE, China’s second-largest maker of telecommunications equipment. Last March, Trump blocked chip maker Broadcom Ltd’s attempted $120 billion takeover of US peer Qualcomm Inc. over concerns the deal could boost Huawei’s competitive position.
ZTE was crippled in April when the United States banned American firms from selling it parts, saying the company broke an agreement to discipline executives who had conspired to evade US sanctions on Iran and North Korea.
The ban, which became a source of friction in Sino-US trade talks, was lifted in July after ZTE paid $1.4 billion in penalties, allowing the firm to resume business.
SoftBank plans to replace 4G network equipment from Huawei with hardware from Nokia and Ericsson, Nikkei reported on Thursday, without citing sources.
Deutsche Telekom, Europe’s largest telecoms company, on Friday said it was reviewing its vendor plans in Germany and other European markets where it operates, given the debate on the security of Chinese network gear.
The Justice Department and Federal Communications Commission must also approve T-Mobile’s and Sprint’s merger. T-Mobile previously said it expected the deal to close in the first half of 2019.