MENA region credit ratings may slip due to political instability

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Jobless graduates demand jobs in Cairo, Egypt and denounce Mubarak regime's inability to provide employment opportunities to the country's youth. Strikes and protests erupted in Egypt and lead to President Hosni Mubarak ouster after staying in power for almost 30 years. Photo - Hussein Malla/AP

Sovereign ratings of countries in the Middle East and North Africa (MENA) region – particularly of Tunisia, Egypt, Syria, Yemen and Bahrain – suffered a massive blow due to the popular uprisings that began in early 2011, Standard and Poor’s said in a report Tuesday. The credit rating agency warned of further deterioration.

S&P expressed its concerns over political instability in the MENA region. The credit rating agency views effectiveness, stability, and predictability of a sovereign’s policymaking and political institutions as the primary factors for determining political risk.

“The Arab Spring uprisings in eight Middle East and North Africa countries since January 2011 increased our view of political risk in the region,” Tommy Trask, Standard and Poor’s credit analyst, said.

The latest International Monetary Fund (IMF) in its recent report warned the MENA economies that unstable political transition could threaten the economic stability of these countries.

Risks to macro-economic stability

“In the ‘Arab Spring’ countries, political transition, pressing social demands and an adverse external environment have combined to increase the near-term risks to macro-economic stability,” said Masoud Ahmad, director of the IMF’s Middle East and Central Asia Department.

The IMF executive said he expects that faltering economic reforms, rising unemployment, and failing fiscal policies are making it hard for Arab countries hit by public uprisings to achieve stability.

S&P has issued negative outlook for Bahrain, Egypt, Jordan, Oman, and Tunisia, and warned potential downgrading of their credit ratings.

“We believe the issues of increased representation, a more even distribution of wealth, and radical changes to political systems could drag on for many years to come,” said Trask.

Economists say many MENA nations are under pressure from rating agencies that are threatening to lower credit ratings if political and economic turmoil escalates and governments fail to stimulate economic growth.

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