Daesh downfall offers respite for smaller economies

Political commentary in the region has focussed on the recent upheaval in Saudi Arabia, but one development that has received little attention is the downfall of the militant group, Islamic State (IS, also known as Daesh). Iraq’s Prime Minister, Haider al-Abadi, formally declared victory over the group in “all Iraqi lands” this month and it is on the brink of defeat in Syria too. Of course, there’s a lot of uncertainty over how events will unfold and, at the very least, both Syria and Iraq face huge reconstruction efforts. That said, there should be positive spillover effects for some of the smaller, neighbouring MENA economies, particularly Lebanon and Jordan. An easing of security concerns should support a recovery in key tourism sectors, encourage greater investment and slow the influx of refugees. In turn, this will ease pressure on fragile budget and current account positions. There may also be a broader regional impact if the defeat of IS reduces the risk premia demanded by investors to hold financial assets in the region.