The Institute of International Finance (IIF) has predicted that non-resident capital flows to the Middle East, North Africa, Afghanistan, and Pakistan region will decline from $208 billion in 2021 to $128 billion in 2022, followed by a slight increase to $145 billion in 2023.
In its report on “Capital Flows in the Middle East, North Africa, Afghanistan and Pakistan” (MENAP), the institute said the modest increase next year would be driven by improvements in FDI flows in most countries of the region, as well as increased official loans to Egypt and Pakistan.
According to the report, seen by Economic Middle East, “Portfolios and other investments in the six GCC countries have declined due to the reduced need for funding by governments, as financial balances have turned into large surpluses thanks to higher oil prices.”
“Capital inflows to the GCC (which account for more than 70 percent of MENAP inflows) are expected to remain low at around $90 billion in 2023 compared to a peak of $182 billion in 2019,” it predicted.
Foreign Direct Investment
The Institute of International Finance predicted that FDI flows to the Middle East, North Africa, Afghanistan, and Pakistan region would reach $56 billion in 2022 and $66 billion in 2023.
It said the UAE “remains the largest recipient of foreign direct investment in the region with inflows worth $22 billion in 2022 (4.3 percent of GDP).
Hard currency bond issuances from the GCC
The institute also predicted that hard currency bond issuances from the GCC countries would fall from $110 billion in 2021 to $40 billion in 2022, in line with the results of the first nine months of this year.
“This is mainly due to the decline in sovereign borrowing by oil exporters in the region, where governments are expected to record large fiscal surpluses. The issuance of GREs by companies, including government-linked entities, to finance existing loans and bonds maturing in 2023 will remain substantial.”
The institute urged the UAE and Saudi Arabia to use green financing tools and invest in sustainable projects as part of their efforts to diversify their economies away from hydrocarbons.
Capital Outflows
Capital outflows from oil-exporting countries in the region will continue to surpass non-resident capital flows, despite narrowing the current account surplus.
Total foreign assets are estimated at $3.3 trillion, about 70 percent of which are managed by sovereign wealth funds with diversified portfolios of stocks, fixed-income securities, and equities in global companies.
