Implications of US Monetary Policy Normalization for EMEs with … · 2015-11-06 · Salih Alwabil...
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Salih AlwabilDirector - Investment Management Dept. Saudi Arabian Monetary Agency (SAMA)
Implications of US Monetary Policy Normalization for EMEs with Emphasis on MENA Region
FRBNY Central Banking Seminar 2015(October 7, 2015)
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• An Economic Overview of MENA Region
• Impact of the Taper Tantrum on Emerging Markets & MENA Region
• Saudi Arabia Economic & Monetary Policy Background
• Implications of Fed Normalization on Saudi Arabia
• Concluding Remarks
Outline
07-Oct -20152
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Breakdown of MENA GDP by Country
Nominal GDP - 2014
Source: IMF Regional Economic Outlook, May 2015
07- Oct -20153
Economic Overview of MENA Region
MENA GDP is Denominated by Oil Exporters
Jordan
1.1%
Lebanon
1.5%
Mauritania
0.1%Morocco 3.4%
Djibouti 0.0%
Sudan 2.1%
Egypt 8.7%
Algeria 7.0%
Libya 1.5%
Iran 12.3%
Iraq, 7.1%
Bahrain 1.0%
Kuwait 5.5%
Oman 2.5%
Qatar 6.5%
United Arab Emirates, 12.8%
Saudi Arabia 23.8%
Syria
0.0% Tunisia 1.5%
Yemen 1.4%
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201420132012
2.47.0-2.06.7
2.310.71.5
10.3
4.913.44.3
10.0
MENAReal GDP (annual growth)Current Account BalanceGovernment Fiscal BalanceInflation, p.a. (annual growth)
2.410.00.35.8
2.114.75.0
10.4
5.718.28.1
10.4
MENA Oil ExportersReal GDP (annual growth)Current Account BalanceGovernment Fiscal BalanceInflation, p.a. (annual growth)
3.616.54.62.6
3.620.612.12.8
5.424.415.12.4
Gulf Cooperation CouncilReal GDP (annual growth)Current Account BalanceGovernment Fiscal BalanceInflation, p.a. (annual growth)
2.5-5.5-9.810.0
2.7-7.2
-10.510.1
1.9-8.4-8.68.6
MENA Oil ImportersReal GDP (annual growth)Current Account BalanceGovernment Fiscal BalanceInflation, p.a. (annual growth)
MENA Region: Selected Economic Indicators
(Percent of GDP, unless otherwise indicated)
Source: IMF Regional Economic Outlook, May 2015
07- Oct -20154
Economic Overview of MENA Region
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Half of MENA Currencies are Pegged
Source: IMF Annual Report on Exchange Arrangements and Exchange Restrictions 2014
07- Oct -20155
Conventional Peg, 9
Stabilized arrangement, 4
Crawling-like arrangement, 1
Currency Board, 1
Free Floating, 1
Other managed arrangements, 5
Exchange Rate Arrangements of MENA Countries, 2014
Economic Overview of MENA Region
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750
800
850
900
950
1,000
1,050
1,100
65
70
75
80
85
90
95
100
Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15
JP Morgan EM Currency Index (LHS) MSCI EM Equity Index (RHS)
Taper Tantrum
EM Equities and Currencies Performance
07- Oct -20156
Impact of Taper Tantrum on Emerging Markets (May 2013)
Source: Bloomberg
Significant Impact
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200
250
300
350
400
450
Jan-2013 Sep-2013 May-2014 Jan-2015 Sep-2015
JP Morgan EMBI Global Index Spread
JP Morgan EMBI Global Index Spread
Taper Tantrum
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Impact of Taper Tantrum on Emerging Markets (May 2013)
EM Credit Spread Widened
Source: Bloomberg
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Change from Peak to Trough, EM Asset Classes (%)
FX *BondsEquities
-1.5-10.8-15.7Taper tantrum
-5.2-26.6-66.1Financial crisis
-5.512.9-53.1Dot-com crisis
-18.8-22.8-53.9Asian Crisis
Source: Institute of International Finance, September 2015
07- Oct -20158
Impact of Taper Tantrum on Emerging Markets (May 2013)
* FX is GDP-weighted average of 15EM Currencies vis-à-vis USD
Estimate of Taper Tantrum Impact on EM Asset Classes
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07- Oct -20159
Taper Tantrum
Source: Bloomberg
Limited Impact
Impact of Taper Tantrum on MENA Financial Markets
MENA Stock Markets
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
SAUDI UAE KUWAIT QATAR BAHRAIN EGYPT MOROCCO
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0.65
0.85
1.05
1.25
1.45
1.65
1.85
2.05
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
10.50
EGYPTIAN POUND (LHS) MOROCCAN DIRHAM (LHS)UAE DIRHAM (LHS) JORDANIAN DINAR (RHS)TUNISIAN DINAR (RHS) Source: IMF
07- Oct -201510
Impact of Taper Tantrum on MENA Financial Markets
Relative Currencies
Source: Bloomberg
Limited Impact
Taper Tantrum
Taper Tantrum
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Small Capital Inflows to MENA Region
07- Oct -201511
0
200
400
600
800
1,000
1,200
2009 2010 2011 2012 2013 2014
Private Capital Inflows
(US$ Billions)
MENA Latin America Emerging Europe Emerging Asia
Source: Institute of Internal Finance, October 2015
Impact of Taper Tantrum on MENA Financial Markets
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Source: IMF, world Economic Outlook, April 2015
MENA Region Had Current Account Surpluses
07- Oct -201512
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2011 2012 2013 2014
Current Account Balances (% of GDP)
Emerging & Developing Economies Emerging & Developing Asia Emerging & Developing Europe Latin America and the Carabian MENA GCC
Impact of Taper Tantrum on MENA Financial Markets
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0%
5%
10%
15%
20%
25%
2010 2011 2012 2013
External Debt Stocks to Gross National Income (GNI), (%)
All developing countries Latin America and the Caribbean South Asia Middle East and North Africa
Source: World Bank
MENA Region Has Lower Levels of External Debt
07- Oct -201513
Impact of Taper Tantrum on MENA Financial Markets
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Main Economic Indicators
2014201320122011
746744734670Nominal GDP, $ bio
3.502.705.409.96Real GDP, % change
2.683.522.873.72Inflation rate (CPI), %
-2.346.4613.5911.59Fiscal Balance, % GDP
1.582.153.055.40Debt to GDP %
10.3118.2022.4523.68Current Account Balance, % GDP
11.9012.1016.4011.00Banks Credit to Private Sector (growth
rate %)
Source: SAMA & Central Department of Statistics & Information
Moderate Growth & Benign Inflation
527
670 734 744 746
0%
2%
4%
6%
8%
10%
0
100
200
300
400
500
600
700
800
01-Jan-10 01-Jan-11 01-Jan-12 01-Jan-13 01-Jan-14
Nominal GDP (LHS) Chg Real GDP (RHS)
07- Oct -2015
Saudi Arabia : Main Economic Indicators
Nominal Gross Domestic Product
(USD Billions)
Source: SAMA
15
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3.61
3.66
3.71
3.76
3.81
3.86
USD/SAR Spot Rate
Source: SAMA
07- Oct -201515
Saudi Arabia : Monetary Policy
Saudi Riyal is Pegged to USD
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Source: SAMA
Closely Correlate with Fed Fund Rate
07- Oct -201516
Saudi Arabia: Repo and Revers Repo Rates
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Repo & Revers Repo Rates Vs. Fed Fund Rate
RR RRR F-FUND
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-2
-1
0
1
2
3
4
5
6
7
8
3-M SIBOR & LIBOR
3M SIBOR 3M LIBOR 3M SPRAED
Correlates with LIBOR
Source: SAMA
07- Oct -201517
Saudi Arabia : Saudi Interbank Borrowing Rate ( SIBOR) For 3-months
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Source: SAMA
Ample Liquidity
07- Oct -201518
Saudi Arabia: System Liquidity
-40,000
-35,000
-30,000
-25,000
-20,000
-15,000
-10,000
-5,000
0
Weekly Net Repo Transaction
(In Billion USD)
Net Repo Transaction
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Well-Capitalized & Highly LiquidForeign Assets Exceed Foreign Liabilities
Saudi Banks Capital & Liquidity Ratios
20142013201220112010
17.917.918.217.617.6Capital Adequacy Ratio
22.321.623.723.724.8Liquid Assets to Total Assets
33.633.236.437.037.2Liquid Assets to Short-Term Liabilities
Ratio of Foreign Assets & Liabilities to Total Assets and Liabilities
07- Oct -201519
Saudi Arabia: Banks
13.6
5%
13.5
1%
12.2
7%
11.1
3%
11.8
0%
6.69
%
4.88
%
4.57
%
3.92
%
4.32
%
2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4
Foreign Assets Foreign LiabilitiesSource: SAMA Source: SAMA
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Limited impact on MENA financial markets due to
• Small capital inflows• Sizable external balance surpluses• Low external debt levels
Impact for oil exporters is mitigated by
• Currency pegs supported by large FX reserves• Dominance of fiscal over monetary policy
Limited impact on Saudi Arabia
• Strong fundamentals • Resilient banks
07- Oct -201520
Concluding Remarks