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Oman and Yemen Country Risk Reports Q2 2015

Oman and Yemen Country Risk Reports Q2 2015

Core Views

Uncertainty over the health of Sultan Qaboos bin Said al-Said, who has governed Oman since 1970, is bringing the succession question to the fore. We see major risks in the succession process. Governance is set to become more unpredictable in the future, and the Omani political system – with the Sultan enjoying all-encompassing powers – is largely unsustainable in its current form.

The decline in oil prices will have a more severe impact on government and private consumption in Oman than in the rest of the GCC, given the country's fiscal vulnerabilities. We forecast the Omani economy to grow by 3.2% in real terms in 2015, down from an average rate of 3.5% between 2009 and 2012.

The fall in oil prices will leave Oman posting budget and current account deficits from 2015 onward. While the country can rely on the debt and loan markets for the time being, the need to implement new taxes and curb spending will test the regime's popularity.

We see Omani consumer price inflation rising slightly over the coming quarters, to an average of 1.8% in 2015 from 1.0% in 2014. A recovery in global food prices and higher energy prices for some industries will fuel inflationary pressures, but this will be mitigated by the continuing appreciation of the US dollar.

Core Views

We expect the formation of a fragile federalised state in Yemen, and the political situation will remain highly unstable over the coming decade. While not our core view, we flag significant risks of a return to civil war and a de-facto break-up of the state.

The economic outlook is uninspiring, with growth remaining sluggish over the 2015-2019 period. Our core scenario sees business activity continuing to be negatively impacted by civil unrest, while persistent attacks on the country's hydrocarbon infrastructure will weigh on exports.


Executive Summary – Oman
Core Views
Key Risk To Outlook
Chapter 1.1: Political Outlook – Oman
SWOT Analysis
Domestic Politics
After Qaboos: Risks To Political Stability
Uncertainty over the health of Sultan Qaboos bin Said al-Said, who has governed Oman since 1970, is bringing the succession question
to the fore. We see major risks in the succession process.
TABLE: Political Overview
TABLE: FRONTRUNNERS FOR THE SUCCESSION
Long-Term Political Outlook
Royal Succession: Who Is Next In Line?
Royal succession is the major question concerning Oman's political future, although demographic change and regional instability also
pose challenges. The impetus for any major political change is likely to come from Sultan Qaboos bin Said al-Said, assuming that he
tackles the issue before the end of his reign.
Chapter 1.2: Economic Outlook – Oman
SWOT Analysis
Economic Activity
Economy To Feel Impact Of Weaker Oil
The decline in oil prices will have a more severe impact on government and private consumption in Oman than in the rest of the GCC,
given the country's fiscal vulnerabilities. We forecast the Omani economy to grow by 3.2% in real terms in 2015, down from an average
rate of 3.5% between 2009 and 2012.
TABLE: Economic Activity
TABLE: SELECTED INFRASTRUCTURE AND INDUSTRIAL PROJECTS
Fiscal Policy
Fiscal Reform Moving To The Fore
The fall in oil prices will leave Oman posting budget and current account deficits from 2015 onward. While the country can rely on the
debt and loan markets for the time being, the need to implement new taxes and curb spending will test the regime's popularity.
TABLE: Fiscal Policy
Monetary Policy
Moderate Uptick In Inflation
We see Omani consumer price inflation rising slightly over the coming quarters to an average of 1.8% in 2015, compared to 1.0% over
2014.
TABLE: Monetary Policy
Chapter 1.3: 10-Year Forecast – Oman
The Omani Economy To 2024
The Next Episode: Shifting Away From Oil
Declining oil production will weigh on growth over the coming decade. Although Oman is diversifying its economy, it needs to do more to
reduce its energy dependence and develop self-sustaining growth outside of the hydrocarbons and energy-intensive sectors.
TABLE: Long-Term Macroeconomic Forecasts
Chapter 1.4: Operational Risk – Oman
SWOT Analysis
Operational Risk
TABLE: Operational Risk
Availability Of Labour
TABLE: MENA – Availability Of Labour Risk
TABLE: Countries Of Origin Of Migrant Workers
Crime Risk
TABLE: Middle East And North Africa – Crime Risks
TABLE: Crime Statistics
Executive Summary – Yemen
Core Views
Key Risk To Outlook
Chapter 2.1: Political Outlook – Yemen
SWOT Analysis
Domestic Politics
Extremely Fragile Political Situation In 2015
The political situation in Yemen will remain extremely fragile in 2015. A highly unstable semi-federalised state will likely emerge over the
next few years, with the local branch of al-Qaeda becoming increasingly active.
TABLE: Political Overview
Long-Term Political Outlook
Federalised State To Emerge Amidst Protracted Instability
We expect the emergence of a fragile federalised state in Yemen, while the political situation will remain highly unstable over the coming
decade. While not our core view, we flag significant risks of a return to civil war and a de-facto break-up of the state.
Chapter 2.2: Economic Outlook – Yemen
SWOT Analysis
Economic Activity
Weak Growth Over The Next Five Years
Economic growth will remain slow in Yemen in 2015 owing to elevated security risks and an adverse operational environment. We
forecast real GDP growth of 2.2% and 2.5% in 2015 and 2016, respectively, from 1.6% in 2014. Growth will be sluggish over the next
five years, and foreign investment will be minimal.
TABLE: Economic Activity
Monetary Policy
Inflation Accelerating As Political Situation Deteriorates
Inflation in Yemen will increase in 2015, as elevated political instability results in disruptions to supply chains and agricultural production.
We forecast CPI inflation averaging 12.0% in 2015 and 11.0% in 2016, from 9.5% in 2014.
TABLE: Monetary Policy
Chapter 2.3: 10-Year Forecast – Yemen
The Yemeni Economy To 2024
Bleak Outlook As Energy Exports Contract
Declining oil production, the ongoing depletion of water resources and persistent security risks cloud Yemen's macroeconomic outlook
over the 2015-2024 period.
TABLE: Long-Term Macroeconomic Forecasts
Chapter 3: BMI Global Assumptions
Global Outlook
New Era For Oil
Table: Global Assumptions
Table: Developed States, Real GDP GrowtH, %
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Table: Emerging Markets, Real GDP Growth, %

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