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

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.”


HSBC reports lighter-than-expected third-quarter profit fall

Updated 27 October 2020

HSBC reports lighter-than-expected third-quarter profit fall

  • HSBC has a further headache – geopolitical tensions via its status as a major business conduit between China and the West

HONG KONG: HSBC said Tuesday its third-quarter post-tax profits fell 46 percent on-year as the Asia-focused banking giant continued to take a hammering from the coronavirus pandemic and spiraling China-US tensions.
However, the profit falls were not as bad as some analysts had predicted and HSBC said it expected credit losses to be at the lower end of a previously announced $8 billion to $13 billion range.
The global economic slowdown caused by the virus has hit financial giants hard and there is limited optimism on the horizon as Europe and the United States head into the winter with infections soaring once more.
HSBC has a further headache — geopolitical tensions via its status as a major business conduit between China and the West.
As a result, the lender is in the midst of a worldwide overhaul, aiming to slash some 35,000 jobs by 2022, primarily in its less profitable European and American divisions.
“We are accelerating the transformation of the Group, moving our focus from interest-rate sensitive business lines toward fee-generating businesses, and further reducing our operating costs,” chief executive Noel Quinn said in a statement accompanying the results.
Reported post-tax profit for the third quarter came in at $2 billion with revenue down 11 percent at $11.9 billion, the statement said.
Adjusted pre-tax profit slid 21 percent to $4.3 billion in the period, beating a $2.8 billion estimate by Bloomberg analysts.
Quinn described the latest figures as “promising results against a backdrop of the continuing impacts of Covid-19 on the global economy” as well as low interest rates.
In the first six months of 2020, HSBC’s post-tax profits were down 69 percent, meaning the third-quarter results were something of an improvement as some major economies relaxed some of their coronavirus restrictions.
The bank said its board would consider whether to pay “a conservative dividend” for 2020 based on final end of year results and how the global economy looks in early 2021.
Earlier this year, UK regulators called on British banks to scrap dividends for the year to preserve capital during the pandemic crisis.
HSBC makes 90 percent of its profit in Asia, with China and Hong Kong being the major drivers of growth.
As a result, it has found itself more vulnerable than most to the crossfire caused by the increasingly bellicose relationship between Beijing and Washington.
The bank has tried to stay in Beijing’s good graces.
It vocally backed a tough national security law that Beijing imposed on Hong Kong in June to end a year of unrest and pro-democracy protests.
The move sparked criticism in Washington and London but analysts saw it as an attempt to protect its access to China, which has a track record of punishing businesses that do not toe Beijing’s line.
“Geopolitical risk, particularly relating to trade and other tensions between the US and China, remains heightened,” HSBC said in Tuesday’s profit statement.
The US has sanctioned nearly a dozen key Hong Kong and Chinese officials over the national security law, telling international banks to stop doing business with them.
China’s national security law, however, forbids businesses in Hong Kong from adhering to foreign sanctions regimes, leaving many in an unclear regulatory tight spot.
“Investor and business sentiment in some sectors in Hong Kong remains dampened and ongoing tensions could result in an increasingly fragmented trade and regulatory environment,” HSBC said in its statement.
The bank also highlighted the uncertainty over Britain’s withdrawal from the European Union as another potential headwind.
Talks for a post-Brexit trade deal have made little headway with a 31 December deadline fast approaching.
“There is a risk of additional ECL (expected credit losses) charges, particularly in the UK in 4Q20, if the UK and the EU fail to reach a trade agreement,” the bank said.