Implications of US Monetary Policy Normalization for EMEs with Emphasis on MENA Region

Transcription

1 Implications of US Monetary Policy Normalization for EMEs with Emphasis on MENA Region Salih Alwabil Director - Investment Management Dept. Saudi Arabian Monetary Agency (SAMA) FRBNY Central Banking Seminar 2015 (October 7, 2015)

2 Outline An Economic Overview of MENA Region Impact of the Taper Tantrum on Emerging Markets & MENA Region Saudi Arabia Economic & Monetary Policy Background Implications of Fed Normalization on Saudi Arabia Concluding Remarks 2 Oct

3 Economic Overview of MENA Region MENA GDP is Denominated by Oil Exporters Breakdown of MENA GDP by Country Nominal GDP Syria Yemen 1.4% Jordan 0.0% Tunisia 1.5% 1.1% Lebanon 1.5% Mauritania 0.1% Morocco 3.4% Saudi Arabia 23.8% Djibouti 0.0% Sudan 2.1% Egypt 8.7% United Arab Emirates, 12.8% Algeria 7.0% Qatar 6.5% Kuwait 5.5% Iraq, 7.1% Iran 12.3% Libya 1.5% Oman 2.5% Bahrain 1.0% Source: IMF Regional Economic Outlook, May

4 Economic Overview of MENA Region MENA Region: Selected Economic Indicators (Percent of GDP, unless otherwise indicated) MENA Real GDP (annual growth) Current Account Balance Government Fiscal Balance Inflation, p.a. (annual growth) MENA Oil Exporters Real GDP (annual growth) Current Account Balance Government Fiscal Balance Inflation, p.a. (annual growth) Gulf Cooperation Council Real GDP (annual growth) Current Account Balance Government Fiscal Balance Inflation, p.a. (annual growth) MENA Oil Importers Real GDP (annual growth) Current Account Balance Government Fiscal Balance Inflation, p.a. (annual growth) Source: IMF Regional Economic Outlook, May 2015

5 Economic Overview of MENA Region Half of MENA Currencies are Pegged Exchange Rate Arrangements of MENA Countries, 2014 Stabilized arrangement, 4 Crawling-like arrangement, 1 Currency Board, 1 Conventional Peg, 9 Free Floating, 1 Other managed arrangements, 5 Source: IMF Annual Report on Exchange Arrangements and Exchange Restrictions

6 Impact of Taper Tantrum on Emerging Markets (May 2013) Significant Impact EM Equities and Currencies Performance Taper Tantrum 1,100 1, , Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 JP Morgan EM Currency Index (LHS) MSCI EM Equity Index (RHS) Source: Bloomberg 6

7 Impact of Taper Tantrum on Emerging Markets (May 2013) EM Credit Spread Widened 450 JP Morgan EMBI Global Index Spread 400 Taper Tantrum Jan-2013 Sep-2013 May-2014 Jan-2015 Sep-2015 Source: Bloomberg JP Morgan EMBI Global Index Spread 7

8 Impact of Taper Tantrum on Emerging Markets (May 2013) Estimate of Taper Tantrum Impact on EM Asset Classes Change from Peak to Trough, EM Asset Classes (%) Equities Bonds FX * Taper tantrum Financial crisis Dot-com crisis Asian Crisis * FX is GDP-weighted average of 15EM Currencies vis-à-vis USD Source: Institute of International Finance, September

9 Impact of Taper Tantrum on MENA Financial Markets Limited Impact 16,000 MENA Stock Markets 14,000 12,000 Taper Tantrum 10,000 8,000 6,000 4,000 2,000 0 Source: Bloomberg SAUDI UAE KUWAIT QATAR BAHRAIN EGYPT MOROCCO 9

10 Impact of Taper Tantrum on MENA Financial Markets Limited Impact Relative Currencies Taper Tantrum Taper Tantrum EGYPTIAN POUND (LHS) UAE DIRHAM (LHS) TUNISIAN DINAR (RHS) Source: Bloomberg MOROCCAN DIRHAM (LHS) JORDANIAN DINAR (RHS) Source: IMF 10

11 Impact of Taper Tantrum on MENA Financial Markets Small Capital Inflows to MENA Region Private Capital Inflows (US$ Billions) 1,200 1, MENA Latin America Emerging Europe Emerging Asia Source: Institute of Internal Finance, October

12 Impact of Taper Tantrum on MENA Financial Markets MENA Region Had Current Account Surpluses Current Account Balances (% of GDP) 30% 25% 20% 15% 10% 5% 0% -5% -10% Emerging & Developing Economies Emerging & Developing Asia Emerging & Developing Europe Latin America and the Carabian MENA GCC Source: IMF, world Economic Outlook, April

13 Impact of Taper Tantrum on MENA Financial Markets MENA Region Has Lower Levels of External Debt External Debt Stocks to Gross National Income (GNI), (%) 25% 20% 15% 10% 5% 0% All developing countries Latin America and the Caribbean South Asia Middle East and North Africa Source: World Bank 13

14 Saudi Arabia : Main Economic Indicators Moderate Growth & Benign Inflation Nominal GDP, $ bio Main Economic Indicators Nominal Gross Domestic Product (USD Billions) % Real GDP, % change Inflation rate (CPI), % Fiscal Balance, % GDP % 6% 4% Debt to GDP % Current Account Balance, % GDP Banks Credit to Private Sector (growth rate %) Jan Jan Jan Jan Jan-14 Nominal GDP (LHS) Chg Real GDP (RHS) 2% 0% Source: SAMA & Central Department of Statistics & Information Source: SAMA 15

15 Saudi Arabia : Monetary Policy Saudi Riyal is Pegged to USD 3.86 USD/SAR Spot Rate Source: SAMA 15

16 Saudi Arabia: Repo and Revers Repo Rates Closely Correlate with Fed Fund Rate Repo & Revers Repo Rates Vs. Fed Fund Rate RR RRR F-FUND Source: SAMA 16

17 Saudi Arabia : Saudi Interbank Borrowing Rate ( SIBOR) For 3-months Correlates with LIBOR 3-M SIBOR & LIBOR Source: SAMA 3M SIBOR 3M LIBOR 3M SPRAED 17

18 Saudi Arabia: System Liquidity Ample Liquidity Weekly Net Repo Transaction (In Billion USD) 0-5,000-10,000-15,000-20,000-25,000-30,000-35,000-40,000 Net Repo Transaction Source: SAMA 18

19 Saudi Arabia: Banks 13.65% 6.69% 13.51% 4.88% 12.27% 4.57% 11.13% 3.92% 11.80% 4.32% Well-Capitalized & Highly Liquid Foreign Assets Exceed Foreign Liabilities Saudi Banks Capital & Liquidity Ratios Ratio of Foreign Assets & Liabilities to Total Assets and Liabilities Capital Adequacy Ratio Liquid Assets to Total Assets Liquid Assets to Short-Term Liabilities Source: SAMA Source: SAMA Foreign Assets Foreign Liabilities 19

20 Concluding Remarks Limited impact on MENA financial markets due to Small capital inflows Sizable external balance surpluses Low external debt levels Impact for oil exporters is mitigated by Currency pegs supported by large FX reserves Dominance of fiscal over monetary policy Limited impact on Saudi Arabia Strong fundamentals Resilient banks 20