UAE. Some Middle Eastern and North African (MENA) sovereigns could be more susceptible than others to contagion from the current revolt in the Republic of Tunisia (foreign currency ratings BBB/Watch Neg/A-3, local currency BBB+/Watch Neg/A-2 ), says Standard & Poor's Ratings Services today in a report.
Many of the economic and political factors that contributed to the protests leading to the resignation of Tunisia's president Zine El Abidine Ben Ali in mid-January 2011 can be found to different degrees and varying combinations in
other sovereigns in the region, says the report "Tunisia's Jasmine Revolution Is Adding To Political And Fiscal Risks In The MENA Region".
"Although we don't expect a wave of regional political instability, we see Egypt, Algeria, and Jordan, and to a lesser degree Morocco as most vulnerable in this respect," said Standard & Poor's credit analyst Kai Stukenbrock.
These four sovereigns share to a higher degree than some other countries in the region the risk factors that contributed to the events in Tunisia, in Standard & Poor's view, such as young populations, high unemployment, weak economies, rising food prices, and a lack of political and civil liberties.
"Beyond these concrete political risks, we also expect that Tunisia's Jasmine revolution could have a wider ranging indirect impact on public finances in the region," said Mr. Stukenbrock. "This is because governments are trying to moderate or prevent popular discontent by measures to try to stabilize or lower prices of staples and fuels.
The report says the ability of sovereigns to accommodate such populist spending without putting pressure on their credit quality is very uneven across the region and probably inversely correlated with the perceived political returns of such spending.
The hydrocarbon exporters, including most of the Gulf Cooperation Council states, generally have extensive fiscal surpluses and reserves that would allow them to support such spending, at least for a while. On the other hand, the oil importers, particularly those with low income levels, tend to have more strained public finances.
"Downward rating pressures from populist government spending on subsidies, tax cuts, and public sector employment are likely to emerge sooner for countries that already have strained public finances and lack fiscal reserves," said Mr. Stukenbrock.