25/08/2026 03:11 AST
The Middle East and North Africa's fiscal deficit is forecast to narrow to 4.3 percent of gross domestic product in 2027 after widening to 6.2 percent this year, as oil and non-hydrocarbon revenues recover, BMI said.
The research unit, a Fitch Solutions company, raised its 2026 deficit forecast from 5.7 percent in June, after cutting its 2026 Brent forecast to $84 a barrel from $88 following the decline in oil prices after the US-Iran memorandum of understanding.
It expects the aggregate shortfall among hydrocarbon exporters to increase from 4.5 percent of GDP in 2025 to 5.4 percent this year, while the deficit among hydrocarbon importers is forecast to rise from 5.1 percent to 5.7 percent.
The fiscal outlook comes as economies across the MENA face heightened economic pressures from regional conflict, disruptions to energy markets and weaker investment and trade activity. The World Bank expects growth in its Middle East, North Africa, Afghanistan and Pakistan region to slow sharply in 2026, reflecting the impact of the conflict and disruptions to energy production and transportation.
BMI expects the regional deficit to narrow to 4.3 percent in 2027 as oil and non-hydrocarbon revenues recover and subsidy costs decline. Higher spending in the Gulf Cooperation Council to support post-conflict recovery and improve defense will limit the improvement.
Government debt, however, is forecast to rise from 47.8 percent of GDP in 2025 to 48.2 percent this year and 50.2 percent in 2027.
The report said: "Higher-for-longer interest rates will add to these pressures by keeping debt-servicing costs on a higher path than we previously expected."
Uneven fiscal impact
BMI said Iraq, Qatar, Bahrain and Kuwait face the sharpest fiscal deterioration among hydrocarbon exporters because of their exposure to disruptions in the Strait of Hormuz and limited capacity to reroute exports.
Kuwait is forecast to record the GCC's widest fiscal deficit. BMI's regional assessment puts the shortfall at 18.9 percent of GDP in the fiscal year ending March 2027, although its country assessment separately forecasts a 25.5 percent deficit for the financial year 2026-27.
Qatar's shortfall is projected to widen from 0.9 percent of GDP in 2025 to 4.5 percent this year, while Bahrain's is expected to increase from 6 percent to 8.4 percent. Iraq's deficit is forecast to rise from 5.1 percent to 6.2 percent.
Oman is expected to move in the opposite direction after rerouting all its hydrocarbon exports and increasing production by 18.8 percent during the first half of 2026. BMI forecasts its fiscal balance to shift from a deficit of 1.1 percent of GDP in 2025 to a surplus of 2.1 percent this year.
Algeria's deficit is projected to narrow from 14.8 percent of GDP to 11.5 percent, while Libya is expected to return to surplus after recording a deficit of around 30 percent in 2025.
Saudi Arabia limited the revenue impact by rerouting an estimated 60-70 percent of its oil exports through the East-West pipeline.
BMI nevertheless expects its fiscal deficit to widen to 5.9 percent of GDP as higher capital spending absorbs the revenue gains. It separately forecasts a 1.3 percent economic contraction in 2026, followed by 7.6 percent growth in 2027.
Latest external outlooks
The International Monetary Fund's July World Economic Outlook update projected growth across the Middle East and Central Asia to slow to 0.7 percent in 2026 before rebounding to 6.5 percent in 2027.
The 2026 estimate was cut by 1.2 percentage points from April, reflecting a longer expected closure of the Strait of Hormuz and its effects on energy production and transportation.
The World Bank's June Global Economic Prospects forecast Middle East and North Africa growth of 1.6 percent in 2026, down from 4 percent in 2025, with growth among the region's hydrocarbon exporters slowing to 0.3 percent.
The World Bank said higher energy prices would not necessarily translate into stronger fiscal positions for exporters because of increased spending, particularly on defense.
It also forecasts shrinking primary surpluses among hydrocarbon importers as governments increase subsidies and other social-protection measures.
The IMF and World Bank use different regional groupings from BMI, meaning their aggregate projections are not directly comparable.
Financing pressures
BMI previously expected the US Federal Reserve and GCC central banks to reduce policy rates by 50 basis points in 2026. It now anticipates rates will remain unchanged as conflict-related inflation delays monetary easing, keeping financing costs elevated.
The impact is expected to be most pronounced in economies with high debt or large borrowing requirements.
Bahrain's debt exceeds 140 percent of GDP, while Egypt's debt-servicing costs accounted for 54 percent of total government expenditure as of April, according to BMI.
Renewed escalation or a slower recovery in Hormuz shipping could widen deficits further, increase government borrowing requirements and delay monetary easing across the region, the report said.
Arab News
Please wait...
