Weak balance sheets come under the spotlight

Balance sheets in the largest MENA economies have received a lot of attention over the past couple of years, but more recently there has been increasing scrutiny of those in some of the region’s smaller economies. Bahrain and Oman always appeared to be the weak links in the Gulf but – as we have long expected would happen – their near-neighbours look set to provide financial support to stave off devaluations. Meanwhile, the Tunisian authorities have responded to growing balance of payments strains by finally loosening their grip on the dinar – the currency is down by around 8% against the euro since the start of June. Investors are now firmly focussed on Lebanon, where delays in forming a new government have hindered efforts to tighten fiscal policy and stabilise the dire public finances. If tensions with the Gulf escalate again, a devaluation of the pound would become a real possibility and the government may struggle to service its large foreign currency debts.