Total net capital inflows into the Middle East and Africa (MEA) will jump 30% to USD 99bn in 2013 with private inflows accounting for the bulk at 83% of the total, the IIF said in its June 26 “Capital Flows to Emerging Market Economies” report. Net private capital inflows to Emerging Africa and Middle East will rise 12% to USD 82bn in 2013 but will remain at half the peak recorded in 2007, the IIF forecasts.
The two largest components of private inflows in 2013 will be direct equity investment (USD 39bn) and flows from non-bank private creditors (USD 21bn). Commercial bank lending will swing to a positive USD 10bn inflow in 2013 from a negative USD 3bn inflow a year earlier. Portfolio equity inflows will double to USD 12bn from USD 6bn in 2012, according to the IIF. As to official inflows, they will reportedly climb to USD 17bn in 2013 from USD 4bn a year earlier, underpinned by loans from Qatar and Libya and the delayed IMF disbursement to Egypt.
The IIF warned that Egypt’s short-term prospects remain challenging. Net private capital flows have shifted from inflows of USD 13.4bn in FY2009/10 to a retrenchment of USD 6.5bn in FY2011/12. The strong increase in net official flows to Egypt in FY2012/13 is due to loan receivables and deposits from Qatar and Libya, the IIF said. But the ongoing political crisis, delays in concluding an agreement with the IMF, continued weak economic activity, and large fiscal deficits have dented market confidence, delayed private investment, and led to a sharp depreciation of the Egyptian pound, the IIF noted. These parameters will likely persist in the absence of strong economic policy actions (including fiscal adjustments). The ruling Muslim Brotherhood will likely not be able to shore up confidence, thus deterring a revival of private sector inflows, the IIF warned.
Negotiations with the IMF will likely yield an agreement soon that will provide a framework for economic policy and help secure additional financing from other multilateral and official sources, the IIF noted. Egypt’s external financing requirement will hover around USD 14bn (equivalent to 5% of GDP) for FY2013/14, the IIF forecast.
The IIF is downbeat on Lebanon’s prospects which remain threatened by the Syrian turmoil and Hezbollah’s alliance and fighting alongside the Syrian regime. Net private capital flows into Lebanon have steadily declined from a peak of USD 12bn in 2009 to USD 2.4bn in 2012 and a forecast of USD 1.6bn in 2013, the IMF said.
In Morocco, the IIF expects private inflows (mostly in the form of FDI) to remain subdued at around 4% of GDP, close to the average for emerging economies.
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