The coronavirus crisis is expected to near-double the need for external funds in FY 2020/2021 for rated high-yield sovereigns in the Middle East and Africa, Fitch Ratings said on Thursday.
In its recent report, Fitch said the repercussions of the pandemic will largely increase deficits in many countries in the region, expecting the volume of commercial external debt to rise gradually in 2020/2021.
“We believe that external financing needs among the 26 Fitch-rated high-yield sovereigns in the Middle East and Africa will be met largely through a combination of official borrowing and reserve drawdowns. Our expectation takes into consideration a tightening of global hard-currency funding conditions, given heightened levels of investor risk-aversion amid the pandemic,” Fitch reported.
On 16 June, the International Monetary Fund (IMF) announced emergency balance-of-payments support worth $11.9 billion for those sovereigns, equivalent to around seven percent of Fitch's estimate of their aggregate external funding needs in 2020, according to the report.
The IMF is also set to provide additional funds for many countries under its more normal lending arrangements, said the report.
The fund's support will crowd-in financing from other official lenders, and could help support renewed market access, added the report, citing Egypt's (B+/Stable) recent Eurobond issuance.
The reserves of Egypt and Nigeria are larger relative to their funding needs, yet, external liquidity strains could increase if foreign investors sell down their holdings of portfolio investment in these countries, putting pressure on ratings, stated the report.
On Wednesday, Director of the Middle East and Central Asia Department at the IMF Jihad Azour told Ahram Online that the IMF is expected to increase its inflows to the MENA region by 70 percent, compared to 2019, to address the COVID-19 crisis and its repercussions, adding that regional countries have to rearrange their priorities in terms of their economic policies.
He added that the IMF has downgraded its forecasts for the global and regional economy due to the pandemic, stating that a number of MENA countries will see negative growth while others will witness an expected growth contraction in 2020 and 2021 in light of the pandemic development.
The IMF's new global and regional economic outlook is scheduled to be announced on 24 June.