Fortnightly, 19 October 2016

Fortnightly, 19 October 2016

October 19, 2016


19 October 2016
17 Tishrei 5777
17 Muharram 1438




1.1  Israel’s Energy Ministry Considers Gas-to-Liquid Facility
1.2  Jerusalem Approves $2.7 Million Plan to Promote LGBT Equality


2.1  eBay Signs Agrreement for $30 Million Acquisition of Corrigon
2.2  Norges Bank Buys Share in Israel Discount Bank
2.3  SimpleOrder Raises $2.75 Million
2.4  Jezreel Valley Train Back On Track


3.1  Middle East Air Cargo Demand Growth Slumps to a 7 Year Low
3.2  ADNOC Plans to Merge Offshore Oil Firms in Cost-Saving Measure
3.3  France’s Thales Wins Deal to Maintain 2,400 km. Saudi Railway
3.4  Saudi Telcos Boycotted Over High Prices and Bad Service
3.5  Telecom Egypt Picks Ciena for Resilient Optical Mesh Network


4.1  First Solar Commissions 52.5 MW Shams Ma’an Plant in Jordan
4.2  Dubai Starts Work on Middle East’s Largest Rooftop Solar Project


5.1  Lebanon’s Trade Deficit Broadened by 9.66% by August 2016
5.2  Total Number of Registered New Lebanese Cars Drops 12% in September
5.3  Tourist Spending in Lebanon Falls by Third Quarter
5.4  US Approves $65 Million Sale of Cessna Aircraft to Iraq

♦♦Arabian Gulf

5.5  IMF Says Modest Oil Price Recovery to Boost GCC Growth
5.6  Bahrain’s Foreign Reserves Drop by Half Since 2014 Amid Oil Price Slump
5.7  Qatar Airways Signs $11.7 Billion Deal for 40 Boeing Planes
5.8  UAE Private Sector Growth Slows to 3-Month Low in September
5.9  UAE Inflation Falls Sharply In August Amid Fuel Price Slump
5.10  Oman Government Budget Deficit Grows to $10.4 Billion
5.11  Saudi Economy Grows 1.4% in Second Quarter

♦♦North Africa

5.12  Egypt’s Parliament Approves Contentious Civil Services Law
5.13  Egypt’s Poverty Level Reached 27.8% in 2015
5.14  Egypt’s Non-Oil Business Activity Slowdown Stretches to One Year
5.15  Egyptian Parliament Officially Approves Illegal Immigration Law
5.16  World Bank Signs $500 Million Loan to Create Jobs in Upper Egypt
5.17  Chinese Company Signs $20 Billion Agreement to Build New Administrative Capital
5.18  World Bank Pessimistic on Libya’s Economic Outlook
5.19  Morocco’s GDP to Increase by 3.5% by 2018


6.1  Turkish Unemployment Rate Rises to 10.7% in July
6.2  Turkey Permits Controlled Cannabis Production in 19 Provinces
6.3  Greek Unemployment Falls to 23.2% in July



7.1  Shemini Atzeret/Simchat Torah Celebrated
7.2  First Jewish-Druze Military Academy Opens in Northern Israel
7.3  Kuwait Ruler Dissolves Parliament Amid Regional Developments


7.4  Most University Students Don’t Want to Leave UAE
7.5  Islamists Beat Liberals in Morocco Elections


8.1  Teva & Celltrion Announce Exclusive Biosimilar Commercial Partnership
8.2  Israeli Wines Gain International Recognition
8.3  Zebra Medical Vision Announces New Algorithm for Better Breast Cancer Diagnosis
8.4  Teva Announces Launch of Generic Beyaz in the United States
8.5  Humavox & Starkey Bring Wireless Charging to Hearing and Audio Devices


9.1  LightCyber’s Free Purple Team Assessment Tests Data Breach Readiness
9.2  Browsi Officially Launches its Automatic Mobile Page Yield Engine
9.3  Comprendi Wins $250,000 Grand Prize in Twitter #Promote Ads API Challenge
9.4  Airbus Standardizes on Stratasys Solutions for A350 XWB Aircraft Supply Chain
9.5  Celeno & NXP Collaborate to Deliver Whole Home Multi Gigabit Wi-Fi to Market


10.1  Israel’s CPI Fell by 0.1% During September
10.2  Israel’s Economic Growth Rate Stands at 4.3%
10.3  Israeli Exports to Africa Rise as Exports to China Fall
10.4  Israel’s Tax Collection Surplus Exceeds Predictions
10.5  Israel’s Foreign Exchange Reserves Nearing $100 Billion
10.6  Israel’s Public Transport Passengers Rise by 7% in 2016
10.7  OECD Report Finds 50% Decrease in Israeli Road Accident Fatalities
10.8  Israel Has One of Lowest Pension Payouts in OECD


11.1  SAUDI ARABIA: Ratings on Saudi Arabia Affirmed At ‘A-/A-2’; Outlook Stable
11.2  MOROCCO: Morocco Ratings Affirmed At ‘BBB-/A-3’; Outlook Stable
11.3  TURKEY: Where Has Turkey’s Foreign Direct Investment Gone?
11.4  TURKEY: The Islamization of Turkey – Erdogan’s Education Reforms
11.5  IRAQ: Decline of Higher Education in Iraq Continues
11.6  GREECE: Moody’s Affirms Greece’s Government Bond Rating at Caa3


1.1  Israel’s Energy Ministry Considers Gas-to-Liquid Facility

On 13 October, the Ministry of National Infrastructure, Energy & Water Resources published a tender for conducting a feasibility test for a gas-to-liquid (GTL) facility in Israel.  The winning company will receive half the cost of the feasibility test from the ministry, up to NIS 200,000.  Under the tender terms, the test will be for one or more sites on which the plant is likely to be constructed.  A GTL plant makes it possible to turn natural gas into any type of conventional fuel: diesel, gasoline, jet fuel, and gas for cooking and heating.

The innovative technology for producing liquid fuel from natural gas will make it possible to extend the use of natural gas to additional economic sectors and substantially increase demand.  In January 2013, the government decided to reduce dependence on oil for transportation by 30% by 2020, and by 60% by 2025.

Consortia participating in the tender will have to include companies with various capabilities: companies owning national or local infrastructure that is likely to support construction of a GTL facility, such a refining plant, a pipeline for transporting oil and its products, a distribution facility, suitable land, etc.; a company with proven technology, or an official representative of the owner of technology for building a GTL plant; and a company with proven know-how and experience in engineering consultation, design, or management of at least two projects of $100 million or more each for constructing petrochemical plants or energy facilities.  (Globes 13.10)

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1.2  Jerusalem Approves $2.7 Million Plan to Promote LGBT Equality

The Netanyahu government announced on 5 October a new, broad initiative to promote equality for the LGBT community in Israel.  The plan’s funding, some $2.6 million, was approved as part of the 2017/8 state budget, and will be divided among the Welfare, Education and Social Equality ministries.  Under the initiative, the Welfare Ministry’s budget for the LGBT community will be increased by $400,000 and will be directed to promote the construction of LGBT centers nationwide.  The Education Ministry will receive $1.3 million toward formulating educational activities in schools with the aim of promoting tolerance.  The Social Equality Ministry will allocate $660,000 toward a campaign to prevent discrimination against the LGBT community.  The remainder of the funds will be divided between various organizations, including for additional personnel for the Committee for Sex Reassignment, based at Sheba Medical Center in Tel HaShomer, whose members have so far been operating on a voluntary basis.  Finance Minister Moshe Kahlon instructed the Israel Tax Authority to train its personnel on the implementation of tax benefits to same-sex couples.  All government ministries were also instructed to appoint ombudsmen to prevent discrimination based on sexual orientation.  (IH 06.10)

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2.1  eBay Signs $30 Million Agreement for Acquisition of Corrigon

eBay has signed an agreement to acquire Corrigon, a pioneer of visual search technologies.  Corrigon helps identify objects within an image, matching both visual and textual elements to ensure that the image is recognized, correctly classified and best-matched to its corresponding product.  With more than one billion live listings on eBay’s platform, Corrigon’s expertise and technology will help match the best images to their products so that shoppers can be confident that what they buy is exactly what they see.  Corrigon is the third acquisition in 2016 to further bolster eBay’s structured data efforts, following the acquisitions of SalesPredict and Expertmaker.  Financial terms of the deal were not disclosed.

Corrigon brings deep experience in image processing and computer vision to eBay.  Specifically, Corrigon’s technology and expertise will contribute to eBay’s efforts with image recognition, classification and image enhancements as part of its structured data initiative.  There are three parts to eBay’s structured data initiative: first, collect the data; second, process and enrich the data; and third, create product experiences. Corrigon will support the second and third parts – processing and enriching the data and creating product experiences.  Upon the close of the transaction, the team will join eBay’s structured data organization and will be based in eBay’s Israeli Development Center in Netanya.

Tel Aviv’s Corrigon is a pioneer of visual search technologies, making images interactive and monitoring web content related to product.  Founded in 2009, with the vision of bringing power to image recognition, Corrigon created a comprehensive toolbox of Brand Monitoring, Visual Search and Copyright Management.  (eBay 05.10)

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2.2  Norges Bank Buys Share in Israel Discount Bank

Norway’s central bank Norges Bank has increased its holding in Israel Discount Bank to 2.6%.  The investment was made on 28 September and announced in 5 October when Israel Discount Bank raised NIS 480 million in a share offering at NIS 6.93 per share, with a further NIS 224 million to be raised in options.  Norges Bank holds 29.4 million Discount Bank shares worth NIS 201 million.  The purchase of the shares is especially surprising considering that Norges Bank manages the Scandinavian country’s sovereign wealth fund, which in 2013 decided to divest its shares in Israeli companies due to political reasons.  (Globes 06.10)

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2.3  SimpleOrder Raises $2.75 Million

SimpleOrder has closed a $2.75 million series A financing round.  The round was led by Lazarus Israel Opportunities Fund and Foodlab Capital, with participation from existing investors Cyrus Angel Fund and private angel investors.  SimpleOrder also announced the release of its Automated Inventory System, a first-of-its-kind platform that calculates and manages inventory levels in real-time, based on purchasing and sales.

The restaurant industry remains almost unique in the retail world for its lack of systematic, digitized inventory tracking – leaving many managers and chefs in the dark as to their real-time inventory.  Many restaurants still handle stock counts with pen and paper periodically when it’s usually too late to make critical adjustments or correct costly, profit-slashing mistakes such as over-ordering, over-portioning and leakage.  This is a major factor contributing to the reported failure of over 50% of new restaurants within 12 months.

Tel Aviv’s SimpleOrder is a cloud-based purchasing and inventory management platform for restaurants and suppliers.  Founded in 2012, the Tel Aviv based company has raised $3.7 million, including the latest financing.  (Globes 13.10)

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2.4  Jezreel Valley Train Back On Track

After 65 years, the historic Jezreel Valley Railway has returned to active use; new passengers as well as seniors with memories of the old train visit the new version’s debut, which takes travelers from Haifa to Beit Shean via Afula.  The train leaves Haifa and travels via the Zvulun, Jezreel Valley and Beit She’an Valleys.  Travel times between Haifa and Beit She’an are about 50 minutes in each direction.  They are free for now and will still be at a 50% discount rate for valley area residents during early November.  The Jezreel Valley Train will also connect the Haifa Port to the Jordan River Crossing (Sheikh Hussein Bridge).  (Ynet 18.10)

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3.1  Middle East Air Cargo Demand Growth Slumps to a 7 Year Low

Middle Eastern carriers saw air freight demand growth slump to 1.8% year-on-year in August, the slowest pace since July 2009, according to new figures released by the International Air Transport Association (IATA).  Capacity increased by 6.9% during the month, with the strong upward trend seen in Middle Eastern traffic over the past year or so coming to a halt.  In seasonally-adjusted terms, volumes in July were slightly below those seen in January, with the weakening performance partly attributable to slower growth between the Middle East and Asia.  This suggests that Middle Eastern carriers are facing stiff competition from European airlines on the Europe-Asia route, IATA added.

Globally, IATA said air freight markets in August showed that demand, measured in freight tonne kilometers (FTKs), rose 3.9% year-on-year.  Freight capacity measured in available freight tonne kilometers (AFTKs) increased by 4.1% over the same period.  Load factors remained historically low, keeping yields under pressure.  IATA said carriers in all regions except Latin America reported an increase in year-on-year demand in August.  (IATA 05.10)

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3.2  ADNOC Plans to Merge Offshore Oil Firms in Cost-Saving Measure

Abu Dhabi National Oil Co (ADNOC) said it planned to consolidate the operations of two of its offshore oil companies into a new entity, as part of a bigger restructuring of the OPEC member’s main energy firm in the era of cheap oil.  The consolidation of Abu Dhabi Marine Operating Co (ADMA-OPCO) and Zakum Development Co (ZADCO) “aimed at capitalizing on synergies to drive operational efficiency and maximize value,” ADNOC said in a statement.  Current production for the ADMA-OPCO and ZADCO offshore oil fields is around 1.2 million barrels per day and ADNOC’s plan is to boost output potential to around 1.6 million bpd in 2017-18.  The UAE currently produces about 3.2 million bpd.  The consolidation comes after ADNOC reshuffled its leadership in May, the first major shake-up since the appointment of Sultan Al Jaber as chief executive earlier this year.

A steering committee will be formed by ADNOC and its joint venture partners – BP, ExxonMobil, Japan Oil Development Company (JODCO) and Total – to oversee the integration.  ADNOC has a 60% share in ADMA-OPCO, with the remainder owned by BP, JODCO, and Total. ADNOC has a 60% stake in ZADCO, while ExxonMobil and JODCO hold the rest.  ADNOC had said it plans to invest over $25 billion in the next five years on boosting oil output from offshore fields as part of the UAE’s plan to boost its oil output capacity to 3.5 million bpd by 2017-18.  (Reuters 04.10)

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3.3  France’s Thales Wins Deal to Maintain 2,400 km. Saudi Railway

French firm Thales has been awarded a one year renewable maintenance contract for the 2,400 km. lines – mineral and passenger – of the North South Railway project crossing Saudi Arabia.  The North-South Railway project in Saudi Arabia is the world’s largest railway construction and the longest route to adopt the European signaling system.  It involves construction of a single 2,400km track, sidings, yards, depots, stations and administrative facilities to create a line that has its origin in the capital city Riyadh, in the northwest of the country, to Al Haditha, near the border with Jordan.

Thales said that the freight line, 1,486km from Al Jalamid (phosphate belt) to Az Zabirah (bauxite belt), has been operational since November 2015 while the 1,418km passenger line from Riyadh to Haditha will be operational by the end of 2016.  The passenger route will accommodate trains travelling at 200 km/h and will stop at industrial stations in Sudair, Al Qassim, Hail, Al-Jawf and Al-Basayta to Al Haditha.  It added that the maintenance contract includes the corrective activities as well as predictive maintenance, enabling rail operators to fix assets before they fail.  Thales said it is one of the leading providers of signaling solutions and equipment maintenance worldwide.  (AB 07.10)

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3.4  Saudi Telcos Boycotted Over High Prices and Bad Service

Saudi Arabian telecoms firms are reportedly being boycotted by customers protesting high prices and poor service.  The boycott is expected to cause losses totaling in the region of SR50 million ($13.3 million).  The campaign started on 2 October and involves customers turning off their phones for three hours every day.  It is the first of its kind in the Saudi kingdom and comes after the Communications and Information Technology Commission announced it would stop selling unlimited internet cards at the end of September and prevent service operators from doing so, too.  Saudi Telecommunications Company (STC) has stopped selling unlimited data packages, while Mobily and Zain are reportedly continuing to sell the packages.

The whole telecoms industry in Saudi Arabia is preparing for a massive shake-up under government plans to increase competition.  In response, the Capital Markets Authority (CMA) announced plans to offer telcos operators with single “unified licenses” allowing them to offer a full range of telecoms services.  Previously, operators had to apply for separate licenses to offer services such as mobile and fixed-line.  (AB 05.10)

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3.5  Telecom Egypt Picks Ciena for Resilient Optical Mesh Network

Telecom Egypt is deploying Hanover, Maryland’s Ciena’s GeoMesh solution and packet-optical platforms for reliable, low-latency connectivity to meet surging demands for high-bandwidth services on its national terrestrial network and submarine links between the Mediterranean and Asia.  With a more agile and scalable network, Telecom Egypt’s wholesale carrier, service provider, internet content provider and consortium customers will be able to provide diverse data transit routes for international data center interconnect (DCI), disaster recovery, cloud-based services, and other high-capacity services for enterprise and consumer end-customers.

Ciena is a network strategy and technology company. We translate best-in-class technology into value through a high-touch, consultative business model – with a relentless drive to create exceptional experiences measured by outcomes.  (Ciena 17.10)

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4.1  First Solar Commissions 52.5 MW Shams Ma’an Plant in Jordan

Tempe, Arizona’s First Solar has commissioned the 52.5 Mega Watt AC Shams Ma’an project in the Hashemite Kingdom of Jordan, on schedule.  The plant is owned by a consortium of investors consisting of Diamond Generating Europe, Nebras Power Q.S.C. and the Kawar Group.  First Solar significantly contributed to the development of the project before divesting its stake and being appointed the Engineering, Procurement and Construction (EPC) contractor.  Shams Ma’an has a 20-year Power Purchase Agreement (PPA) with the National Electric Power Company (NEPCO), the country’s power generation and distribution authority.

The plant, which accounts for approximately 1% of Jordan’s total energy generation capacity, produces clean electricity using over 600,000 high-performance First Solar Series 4 thin film modules, which deliver up to 5% more specific energy in Ma’an than conventional crystalline silicon panels.  The modules are mounted on single-axis trackers that allow the facility to generate up to 20% more energy.  Significantly, the facility was constructed by a workforce that was almost entirely Jordanian, with First Solar spending over 40,000 man hours on training alone, creating a new skills resource for the country.

First Solar is a leading global provider of comprehensive photovoltaic (PV) solar systems which use its advanced module and system technology.  The company’s integrated power plant solutions deliver an economically attractive alternative to fossil-fuel electricity generation today.  (First Solar 09.10)

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4.2  Dubai Starts Work on Middle East’s Largest Rooftop Solar Project

Construction of the largest solar rooftop project in the Middle East is underway after DP World commissioned the installation of 88,000 solar panels on its Dubai facilities in Jebel Ali Free Zone and Mina Rashid.  Upon the completion of phase one in 2017, the project will provide enough clean power for 3,000 homes a year.  It will result in 22,000 metric tons of carbon being saved annually, equivalent to taking 4,500 cars off the road.  The solar panels will provide 40% of the total energy consumption of Jafza, one of the world’s largest free trade zones.  The DP World Solar Programme will contribute to energy diversification in the region as part of Dubai’s Integrated Energy Strategy 2030, which seeks to reduce energy demand by 30% by 2030.  The solar scheme is one of the largest initiatives to be implemented under the recently launched Shams Dubai program by Dubai Electricity & Water Authority (DEWA).  (AB 05.10)

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5.1  Lebanon’s Trade Deficit Broadened by 9.66% by August 2016

According to the Lebanese Customs, Lebanon’s trade deficit widened by 9.66% from $9.80B by August 2015 to $10.74B by August 2016.  Exports increased by a yearly 3.10% to $2.05B, while imports added 8.55% y-o-y to $12.79B.  In terms of volume, imported volume of goods added 23.05% to 12.50M tons by August 2016, meanwhile the volume of exports dropped 20.25% to 1.09M tons.

Looking at imports, mineral products (22.29% of total import value) saw rising value and volume, noting that oil prices averaged lower in Jan-August 2016, when compared to the previous year.  Imports of mineral products increased 44.13% y-o-y, in terms of volume, to reach 6.48M tons by August 2016.  Accordingly, value of total imported mineral products increased 42.78% y-o-y to $2.85B.  Moreover, products of the chemical or allied industries, which grasped 10.70% of the total value of imported goods increased by a yearly 4.19% to $1.37B.  As for machinery and electrical instruments, they grasped a share of 9.79% of the total value and fell by 8.55% from 2015 to stand at $1.25B by August 2016.

The top countries Lebanon imported from during the first eight months of the year were China, Italy, USA, Germany and Greece with respective shares of 11.08%, 7.48%, 6.70%, 5.91% and 4.96% of the total value.  As for exports and with gold prices inching up this year and given the strength of the Lebanese jewelry sector, “pearls, precious stones and metals” products maintained the highest share of exported goods (27.32%)  and increased by 88.71% y-o-y to $560.56M.  As for prepared foodstuffs, beverages and tobacco, they comprised 14.51% of exported goods’ value amounting to $297.73M by August 2016, compared to $325.15M by August 2015.  Moreover, exports of machinery and electrical instruments, that take up to 11.71% of the total exports, fell by 15.62% y-o-y to $240.35M by August 2016.  The top export destinations for the same period were South Africa, Saudi Arabia, United Arab Emirates, Syria and Iraq with respective shares of 22.26%, 9.43%, 8.31%, 5.89% and 5.59% of the total value.  (LC 07.10)

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5.2  Total Number of Registered New Lebanese Cars Drops 12% in September

According to the Association of Lebanese Car Importers, despite the increasing promotional and advertising campaigns, the number of newly registered cars fell 12% from August 2016 to September 2016.  Also, as a result of “the absence of an adapted and structured public transportation”, people are shifting their preferences towards small cars, where “90% of the registered cars are small cars with low selling prices (less than $15,000)”.  Hence, this change led to a fall in importers’ companies revenues.  Moreover, the total number of newly registered commercial and passenger cars marginally fell 0.92% year- on- year (y-o-y) to 30,552 cars by Q3/16.  The number of registered commercial cars rose by 18.49% y-o-y to 1,973, while the number of registered passenger vehicles dropped 2.03% to reach 28,579 cars during the first 3 quarters of the year.  In terms of car brands, Kia grasped the largest share of 18.51% of newly registered passenger cars, followed by Hyundai, Toyota and Nissan with respective shares of 14%, 12.9% and 9%.  (BLOM 13.10)

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5.3  Tourist Spending in Lebanon Falls by Third Quarter

The lower number of GCC tourists coming to Lebanon led to a 10% y-o-y fall in tourist spending by the third quarter (Q3) of 2016, according to Global Blue.  However, on a quarterly basis, the occurrence of both Adha and Al-Fitr holidays during Q3/16 did not lead to an improvement in tourist spending when compared to the same period last year, as it slipped by 3% y-o-y.  On a year-to-date basis, tourist spending by Saudi Arabian visitors decreased by 20% by Q3/16, when compared to the same period last year.  Similarly, spending by Qatari, Kuwaiti and Iraqi tourists plummeted by 21% each over the same period.  However, Syrian tourist spending rose by 7%, mainly due to the increasing number of Syrian citizens in Lebanon.  During the first 9 months of the year, fashion and clothing accounted for 73% of the spending distribution by category, followed by 13% for watches and jewelry.  Nevertheless, spending on all categories significantly dropped by Q3 2016 when compared to the same period in 2015.  In details, spending on fashion and clothing, watches and jewelry, and souvenirs and gifts witnessed respective falls of 8%, 17%, and 33%.  Locally, 79% of tourist expenditures took place in the capital Beirut, while 12% were spent in Metn (Mount Lebanon).  (BLOM 15.10)

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5.4  US Approves $65 Million Sale of Cessna Aircraft to Iraq

The US State Department has approved a possible Foreign Military Sale to Iraq for AC-208 aircraft and related equipment, training, and support.  The estimated cost is $65.3 million.

The Government of Iraq requested to purchase two (2) Cessna AC-208 aircraft that include: dual rail LAU-131 Hellfire launcher capability on each wing, AN/ALE-47 electronic countermeasure dispenser, AN/AAR-60 Missile Launch Warning System, AN/AAQ-35 ElectroOptical Infrared Imaging System, contractor aircraft modifications, spare parts, publication updates, aircraft ferry, and miscellaneous parts.  Iraq originally purchased three (3) AC-208 and three (3) C-208 aircraft in 2008.  The Cessna aircraft are used to support Iraqi military operations against al-Qaeda affiliate and the Islamic State (IS) forces.  The purchase of two (2) additional aircraft enables the Iraqi Air Force to continue its fight against IS.  Iraq will have no difficulty absorbing these aircraft into its armed forces.  The principal contractor is Orbital ATK, Falls Church, Virginia.  (DSCA 12.10)

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►►Arabian Gulf

5.5  IMF Says Modest Oil Price Recovery to Boost GCC Growth

Modest recovery in oil prices is unlikely to improve growth prospects for Middle East oil exporting economies, with projected average growth hovering at 3.3% for 2016, according to the International Monetary Fund (IMF).  Most oil exporters continue to tighten fiscal policy in response to lower oil revenues and liquidity in the financial sector continues to decline. Meanwhile, many countries in the region also remain affected by geopolitical conflict.  However, there are substantial variations in growth prospects within the seven oil exporting Middle East and North Africa (MENA) economies.

The largest economy, Saudi Arabia, is projected to grow at a modest 1.2% this year in the face of fiscal consolidation, before picking up to 2% next year.  The UAE’s economic growth is also expected to be modest at 2.3%, picking up marginally to 2.5% in 2017, while growth projections for Qatar and Kuwait are similar, at 2.6% and 2.5% respectively.  2017 forecasts for Qatar and Kuwait stand at 3.4% and 2.6% respectively, the IMF added.

Outside the GCC, growth prospects are more optimistic but they follow lower growth in the previous year.  The IMF puts Iraq’s projected growth at 10.3% for 2016 based on higher than expected oil production this year.  The country saw negative growth of -2.4% in 2015, and, going into 2017 and beyond, growth is expected to be held back by continued security challenges and lower investment in the oil sector hampering production.  (IMF 05.10)

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5.6  Bahrain’s Foreign Reserves Drop by Hlf Since 2014 Amid Oil Price Slump

Bahrain’s foreign reserves have more than halved since the end of 2014 as low oil prices slash the value of the country’s exports.  The central bank of Bahrain, one of the Gulf states hit hardest by cheap oil, has not published its monthly monetary statistics bulletin since June 2015.  It has not responded to requests for comment on why it halted publication.  That leaves bond prospectuses as a key source of data on the kingdom.  The government has been increasing its debt issues to finance a budget deficit caused by cheap oil, and on 4 October it sold $1 billion of seven-year Islamic bonds and $1 billion of 12-year conventional bonds.

Gross foreign reserves held by the central bank, including gold, shrank to $2.78 billion on June 30 this year from $3.39 billion at the end of last year and $6.06 billion in 2014, the Islamic bond prospectus showed.  At the end of 2014, reserves were worth 3.7 months of Bahrain’s imports, the prospectus said.  That implies reserves have now dropped well below 90 days of import cover, a level traditionally considered by many economists to be at the bottom of a country’s comfort zone.  Bahrain’s current account balance, which includes trade in goods and services, fell into a $79 million deficit last year from a $1.52 billion surplus in 2014, the prospectus showed.

Bahrain’s main source of oil is the Abu Saafa oilfield, which it shares with Saudi Arabia.  Under their treaty, Bahrain is entitled to 50% of the field’s output, but the prospectus noted that it had been receiving “significantly more” than that ratio.  Bahrain is also benefiting from a regional development fund established by Saudi Arabia and two other rich neighbors, Kuwait and the United Arab Emirates.  The fund, established in 2011, aims to provide Bahrain with $7.5 billion of grants over a 10-year period.  Of that amount, $6.2 billion has been earmarked for development projects in Bahrain but only $500 million has actually been disbursed, the prospectus said.  (Reuters 05.10)

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5.7  Qatar Airways Signs $11.7 Billion Deal for 40 Boeing Planes

Qatar Airways ordered 40 Boeing Co wide body jets valued at $11.7 billion and signed a letter of intent for up to 60 narrow body 737 MAX 8 jets worth $6.9 billion.  The agreement for up to 100 jetliners potentially worth $18.6 billion helps fill out Boeing’s order book in a year when sales have slowed sharply, and amid tough price competition with European rival Airbus.  The deal marked a key commitment by Qatar Airways to Boeing’s new 737 MAX jetliner, after it refused to accept three of Airbus’ competing A320 aircraft earlier this year.  Qatar has not ordered 737s previously.

The deal for 30 of Boeing’s 787-9 Dreamliners and 10 of its 777-300ER aircraft is significantly larger than an order for five Boeing 777-300ER aircraft worth $1.7 billion that the carrier had been expected to place during Britain’s Farnborough Airshow in July.  The orders are worth $11.7 billion at list prices, with an additional list value of $6.9 billion if all of the 737 MAX jets are purchased.  Airlines typically receive steep discounts on large orders.  Qatar Airways’ order is likely to further intensify concern among US airlines about what they term unfair subsidies that Gulf carriers receive.  The three Gulf carriers deny receiving subsidies, and other powerful US businesses, including FedEx Corp and Boeing, oppose changes to Open Skies agreements with Gulf nations.  (Reuters 08.10)

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5.8  UAE Private Sector Growth Slows to 3-Month Low in September

Growth in the UAE’s non-oil private sector eased in September, with business conditions improving at the weakest pace since June, according to the Emirates NBD UAE Purchasing Managers’ Index (PMI).  The PMI showed that the sector’s slowdown was largely reflective of a subdued expansion in new work – the latest rise was the least marked in over six years.  Job creation was also modest but both output and purchasing rose sharply, suggesting that firms remain confident about the near-term outlook.  On the price front, competitive pressures led to lower purchase costs and output charges. The fall in the former ended a 17-month period of inflation, the survey showed.

The sharp slowdown in new order growth last month appears to be due to weaker demand from external markets rather than soft domestic demand.  Growth in output and purchasing activity remained strong.  Overall, the PMI data points to a faster rate of expansion in the UAE’s non-oil private sector in Q3/16, compared to Q2.  Higher output remained a key driver of growth of the sector as a whole during September.  The rate of expansion was marked and only slightly slower than seen in the previous two months. Activity was reportedly bolstered by new projects and new client wins.  (AB 08.10)

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5.9  UAE Inflation Falls Sharply In August Amid Fuel Price Slump

The UAE’s inflation rate fell sharply on an annual basis to 0.6% in August, according to the UAE National Bureau of Statistics.  The year-on-year rate dropped from 1.8% the previous month and was down from 4.9% in the year-earlier period.  The figures showed that housing and utility costs, which account for over 39% of consumer expenses, rose 2.7% from a year earlier.

Food and soft drink prices, which account for nearly 14%, climbed 1.7% but transport costs plunged 12.1% after the UAE cut domestic fuel prices for August.  In Abu Dhabi, 51 private schools have just been granted permission to increase their fees by an average of 6% for the 2016-2017 academic year.  (NBS 15.10)

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5.10  Oman Government Budget Deficit Grows to $10.4 Billion

Oman’s government posted a budget deficit of OR4.02 billion ($10.4 billion) in the first seven months of 2016, nearly double the figure a year earlier.  The January-July deficit compared to a deficit of OR2.39 billion, as low oil export prices slashed its revenues, provisional Finance Ministry data showed.  The government’s original 2016 budget plan envisaged state expenditure of OR11.9 billion and revenues at OR8.6 billion.  Officials said their 2016 economic plans assumed an average oil price of $45 a barrel.

Oman is imposing a series of austerity measures after it posted a budget deficit of about OR4.5 billion last year.  Gasoline and diesel price subsidies have been cut and similar cuts are planned for electricity and liquid petroleum gas.  In August, the World Bank said Oman’s subsidy bill is expected to fall by 64% this year as the government seeks to reform its finances amid lower oil prices.  (AB 08.10)

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5.11  Saudi Economy Grows 1.4% in Second Quarter

Saudi Arabia’s economy grew 1.4% during Q2/16 compared to the year-earlier period, according to the latest Quarterly GDP Update from Jadwa Investment.  It said year-on-year growth in the Saudi kingdom continued to slow for the fourth consecutive quarter, mainly owing to a deceleration in annual GDP growth for both the oil sector and the non-oil private sector.  It added that annual growth in non-oil government sector GDP turned positive following two consecutive quarterly contractions.

Jadwa said that within the non-oil private economy, transport and finance were the fastest growing sectors in Q2.  It added that utilities, construction, wholesale and retail, and non-oil manufacturing all saw negative annual growth for the second consecutive quarter.  Jadwa expects continued growth in oil production during H2/16, while the slowdown in non-oil GDP will moderate.  Jadwa revised its 2016 full-year GDP forecast to 1.1%, down from an earlier forecast of 1.7%.  (AB 14.10)

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►►North Africa

5.12  Egypt’s Parliament Approves Contentious Civil Services Law

On 4 October, Egypt’s parliament approved the much-debated civil services law in the first session of the House of Representatives’ second legislative term.  The law has been the point of much debate since the majority of parliament voted against it in its first legislative term.  President A-Sisi ratified the law in March 2015 prior to the election of the House of Representatives.  Despite the parliament’s approval of over 300 executive decrees passed in its absence, the civil services law was met with wide opposition.

The controversial law, which affects more than 5 million public sector employees, enraged many and prompted some to protest, reigniting labor action in the country after a months-long pause.  Amendments include increasing the raise for employees to become 7% instead of the previously proposed 5%.  The new law also permits those who earned a higher degree during their time in office to be compensated according to the newly acquired degree.

The inflated public sector has been a long-held concern by the government as the budget deficit continues to grow. It has therefore targeted to reduce its wage bill.  Egypt’s budget deficit rose by 16.8% to $28.71 billion in the first nine months of 2015/16.  The government has denied, however, that the civil services bill aims to shrink the size of the sector, saying it is only meant to improve the efficiency of employees and monitor administrative bodies.  (Aswat Masriya 05.10)

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5.13  Egypt’s Poverty Level Reached 27.8% in 2015

The number of poor people in Egypt in 2015 stood at 27.8% of the overall population, comparing to 25.2% in 2010-2011, according to data released on 16 October by CAPMAS.  It said that 5.3% of the population were living in extreme poverty in 2015, due in part to soaring prices of food commodities.  The average poverty line in 2015 was set at LE322 per person per month, whereas the relative poverty line was set at LE482.  Some 56.7% of the population in rural areas in Upper Egypt could not afford their basic commodities (food and non-food), compared to 19.7% of population in rural areas in Lower Egypt.  CAPMAS said that in 2015 poverty stood at 40% among the illiterate and 7% among university graduates.  Among the factors that correlate with poverty levels, poor education is the key issue in Egypt. Poverty indicators go down as education levels go up.  (CAPMAS 16.10)

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5.14  Egypt’s Non-Oil Business Activity Slowdown Stretches to One Year

Business activity in Egypt shrank for the 12th consecutive month in September, with output declining the most in five months and a weakening currency pushing up prices.  The Emirates NBD Egypt Purchasing Managers’ Index (PMI) for the non-oil private sector stood at 46.3 points, down from August’s 47.0 points and well below the 50 point mark that separates growth from contraction.

Egypt’s economy has been struggling since 2011 due to a sharp drop in tourism and foreign investments, two main sources of hard currency for the import-dependent country.  The country reached a preliminary agreement with the IMF in August for a three-year $12 billion loan program aimed at plugging its financing gap and stabilizing its currency market.  The weakening currency and a value-added tax adopted recently as part of economic reforms had combined to push up prices and weigh on growth.

Egypt’s annual headline inflation jumped to 16.4% in August 2016 to its highest in at least seven years, according to state statistics body CAPMAS.  Egypt has been expected to soon devalue its currency, which officially trades at 8.78 pounds to the dollar, to bring it into line with a black market rate that has hovered at around 14 pounds in recent days.  In March, Egypt, which relies heavily on imports of wheat and other staples to feed its population of 90 million, weakened the Egyptian pound by 14% of its value against the dollar in an attempt to eliminate the black market.  Other expected reforms include cuts to the bloated civil service and further slashes to subsidies in petroleum and electricity.  (Reuters 05.10)

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5.15  Egyptian Parliament Officially Approves Illegal Immigration Law

On 17 October, the Egyptian Parliament approved the final draft of the government’s Illegal Immigration Law, albeit five members rejected the bill and two abstained from voting and 402 votes were cast in favor of the legislation.  According to the new law, anyone found guilty of smuggling, attempting to smuggle or otherwise aiding in the process of smuggling migrants will be penalized with a fine ranging between EGP 50,000 and EGP 200,000.  The bill also stipulates that these criminals will be imprisoned for their actions but does not specify a range for the imprisonment period.  Meanwhile, those who cause the death of a migrant while smuggling them, smuggle women and children, or smuggle migrants with the aim of carrying out a terrorist attack will be sentenced to death.

The approval of the bill comes less than one month after a migrant boat carrying as many as 600 people capsized in the Mediterranean, off Egypt’s north coast, on its way to European shores.  The boat set sail from Egypt’s north coast and capsized a short while later near Burg Rashid, a village in the Egyptian province of Beheira.  Egyptian authorities arrested the owner and crew members of the boat, while Egyptian President Abdel Fattah Al-Sisi instructed his government to take steps to support more small medium enterprises for Egyptian youth in order to provide more opportunities for those seeking to immigrate.

In recent years, Egypt has become a hub for illegal immigration, with hundreds of people setting sail from its shores on over packed migrant boats in an attempt to reach Europe.  Over 40,000 migrants have crossed the central Mediterranean to Italy this year and a total of 2,800 deaths were recorded between January and June of 2016.  (Various 17.10)

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5.16  World Bank Signs $500 Million Loan to Create Jobs in Upper Egypt

Egypt signed a $500 million loan deal with the World Bank to help create jobs and improve infrastructure in Upper Egypt, the Ministry of International Cooperation announced.  The program – part of a total $8 billion the World Bank Group will provide to Egypt from 2015-2019 – is aimed at raising the living standard in governorates most in need.  The Upper Egypt Local Development Program will improve economic growth rates in Upper Egypt, create sustainable job opportunities, enhance the business climate and improve infrastructure and the delivery of services.

The World Bank said that the program will focus on the two lagging regions of Qena and Sohag, which are among Egypt’s poorest areas “but have a large unrealized growth potential.”  The program will focus on facilitating and promoting private sector development in agribusiness, service, and industrial sectors with growth potential.  (Ahram Online 07.10)

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5.17  Chinese Company Signs $20 Billion Agreement to Build New Administrative Capital

The Egyptian government has signed a $20 billion agreement with the Beijing-based China Fortune Land Development Company (CFLD) to construct the second and third phases of the new administrative capital, work on which is due to commence after June 2018, when the first phase of the mega-project is scheduled to be finished.  Prime Minister Ismail presided over the signing of the agreement between the ministries of housing and investment and the CFLD.  The ministers reportedly claimed that the agreement would attract $15 billion in direct foreign investment.

Housing Minister Madbuly said his ministry would provide land for the project that is zoned for commercial, recreational, residential and industrial purposes.  The Investment Ministry will reportedly facilitate the provision of all necessary state licensing to ensure that the CFLD can operate effectively.

In initial talks, the government planned to partner with the Abu Dhabi-based Capital Partners Company.  However, the partnership fell apart, and the Egyptian state subsequently turned to the China State Construction Engineering Corporation (CSCEC), which has now been replaced by the CFLD.  The second phase of the new administrative center — situated just east of the Greater Cairo metropolis — has been projected to be completed by June 2020, with work on the third and final phase coming to a close in 2022.  According to the project’s ambitious blueprints, the completed city will occupy 700 square kilometers.  A replica of the Eiffel Tower was also initially slated to be built, along with skyscrapers and a massive obelisk similar to the Washington Monument.  (Mada Masr 04.10)

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5.18  World Bank Pessimistic on Libya’s Economic Outlook

A new report from the World Bank says the Libyan economy is near collapse as political stalemate and civil conflict prevent it from fully exploiting its sole natural resource: oil.  With oil production just a fifth of potential, revenues have plummeted, pushing fiscal and current account deficits to record highs.  With the dinar rapidly losing value, inflation has accelerated, further eroding real incomes.  In addition to near-term challenges of macroeconomic and social/political stability, medium-term challenges include rebuilding infrastructure and economic diversification for job creation and inclusive growth.

The outlook hinges on the assumption that the Libya’s House of Representatives will endorse a new government of national accord by the end of 2016, which will be able to start restoring security and launching programs to rebuild the economic and social infrastructures, especially oil facilities and terminals.

In the baseline scenario, production of oil is projected to progressively improve to around 0.6 million bpd by end-2017.  On this basis, GDP is projected to increase 28%.  However, the twin deficits will remain as revenues from oil and will not be sufficient to cover budget expenditures and consumption-driven imports.  This should keep the budget deficit at about 35% of GDP and the current account deficit at 28% of GDP in 2017.  However, downside risks to this scenario remain high as the political uncertainties may prevail.

Over the medium term, it is expected that oil production will progressively increase without reaching full capacity before 2020 due to the time necessary to restore the heavily damaged oil infrastructure.  In this context, growth is projected to rebound at around 23% in 2018.  Both the fiscal and current account balances will significantly improve, with the budget and the balance of payments running surpluses expected from 2020 onwards.  Foreign reserves will average around $26 billion during 2017-2019, representing the equivalent of 13 months of imports.  Unless immediate and target action is taken to address the humanitarian crisis, the situation is unlikely to improve.  The situation in Libya is such that simply relying on a slightly improved macro outlook is unlikely to bring about significant change.  The country needs humanitarian aid and specific programs to address the destruction and lack of basic services that a large part of the population faces.  (World Bank 11.10)

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5.19  Morocco’s GDP to Increase by 3.5% by 2018

At a time when poor rain-fed harvests have weighed on economic growth in Morocco during 2016, the Kingdom’s Gross Development Product (GDP) is forecast to grow by 3.5% in 2018, up from 1.5% in 2016, according to a report by the World Bank.  Data from the World Bank Economic Monitor for the Middle East and North Africa (MENA) said economic activity in Morocco is expected to rebound in 2017 following a sharp economic drop in 2016.  In the short term, Morocco’s GDP growth should slow down to 1.5% in 2016 as the full impact of the fall 2015 drought unwinds, it added.

Agricultural GDP is projected to contract by 9.5% in 2016 before re-bounding by 8.9% in 2017.  Non-agricultural GDP growth is expected to hover around 3% in the absence of more decisive structural reforms.  The strong performance of the newly developed industries (automobile, aeronautics and electronics) and the expansion of Moroccan companies in Western Africa are potentially creating the conditions for Morocco to lift its position in global value chains.

Assuming the full implementation of a far-reaching reform agenda following the autumn 2016 parliamentary elections, growth could reach 4% over the medium term, with inflation kept at around 2%.  However, the spatial inequalities are likely to persist in the absence of targeted policies that address the multitude of challenges faced in the lagging regions of the country.  (WB 16.10)

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6.1  Turkish Unemployment Rate Rises to 10.7% in July

Turkey’s quarterly jobless average increased to 10.7% in July from the previous 10.2%, data from the Turkish Statistics Institute (TUIK) showed on 17 October.  In the same period, the non-agricultural unemployment rate was 13%, representing a one-point increase year on year.  While the youth unemployment rate, which includes persons aged 15-24, was 19.8% – a 1.5-point increase – the unemployment rate for persons aged 15-64 was 11% – a one-point increase.  The number of unemployed persons aged 15 years old and above totaled approximately 3.3 million in July.

The number of employed persons was roughly 27.6 million persons amid a year-on-year rise of about 294,000 people.  The employment rate totaled 47%, 0.2% less than July 2015, the official data showed.  (TUIK 18.10)

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6.2  Turkey Permits Controlled Cannabis Production in 19 Provinces

Cannabis production has been allowed in 19 provinces across Turkey in a controlled manner, in a bid to combat illegal production, according to a decree by the Food, Agriculture and Livestock Ministry in late September.  Permission will initially be effective for a maximum three-year period, according to the decree.  In exceptional cases, the ministry will also be able to grant permission in other provinces if the production is for “scientific purposes.”  When applying for a license, potential producers will need to offer a warrant showing they have not been involved in any illegal cannabis production activity or narcotics production, dealing or use.  Ministry officials will check cannabis fields at least once a month before the start of the harvest season, according to the decree.  It also stipulates that authorized producers will need to dispose all parts of the cannabis plant after the harvest period in order to prevent drug production.  (HDN 14.10)

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6.3  Greek Unemployment Falls to 23.2% in July

ELSTAT announced that Greece’s jobless rate eased to 23.2% in July from 23.4% in the previous month.  The number of officially unemployed reached 1.12 million people.  Hardest hit were young people aged 15 to 24 years, with their jobless rate dropping to 42.7% from 48.6% in the same month a year earlier.  The reading in July, based on seasonally adjusted data, was the lowest since March 2012, when unemployment stood at similar levels.  The jobless rate hit a record high of 27.9% in September 2013.  Greece’s unemployment rate has come down from record highs but remains more than double the Eurozone’s average of 10.1% in July.  The government expects unemployment will drop to 22.4% next year, based on its draft 2017 budget.  (ELSTAT 06.10)

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7.1  Shemini Atzeret/Simchat Torah Celebrated

On 23/24 October, or 22 Tishri, the day after the seventh day of Sukkot, is the holiday Shemini Atzeret.  In Israel, Shemini Atzeret is also the holiday of Simchat Torah.  Outside of Israel, where extra days of holidays are held, only the second day of Shemini Atzeret is Simchat Torah.

These two holidays are commonly thought of as part of Sukkot, but that is technically incorrect; Shemini Atzeret is a holiday in its own right and does not involve some of the special observances of Sukkot.  Shemini Atzeret literally means “the assembly of the eighth (day).”  Rabbinic literature explains the holiday this way: our Creator is like a host, who invites us as visitors for a limited time, but when the time comes for us to leave, He has enjoyed himself so much that He asks us to stay another day.  Another related explanation: Sukkot is a holiday intended for all of mankind, but when Sukkot is over, the Creator invites the Jewish people to stay for an extra day, for a more intimate celebration.

Simchat Torah means “Rejoicing in the Torah.”  This holiday marks the completion of the annual cycle of weekly Torah readings.  Each week in synagogue we publicly read a few chapters from the Torah, starting with Genesis Ch. 1 and working around to Deuteronomy 34.  On Simchat Torah, the last Torah portion is read, then proceeds immediately to the first chapter of Genesis, reminding us that the Torah is a circle, and never ends.

This completion of the readings is a time of great celebration.  There are processions around the synagogue carrying Torah scrolls and plenty of high-spirited singing and dancing in the synagogue with the Torahs.  As many people as possible are given the honor of an aliyah (reciting a blessing over the Torah reading); in fact, even children are called for an aliyah blessing on Simchat Torah.  In addition, as many people as possible are given the honor of carrying a Torah scroll in these processions.  Children do not carry the scrolls (they are much too heavy!), but often follow the procession around the synagogue, sometimes carrying small toy torahs (stuffed plush toys or paper scrolls).  Shemini Atzeret and Simchat Torah are holidays on which work is not permitted.

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7.2  First Jewish-Druze Military Academy Opens in Northern Israel

A first-of-its-kind joint Jewish-Druze military academy opened in the northern Druze town of Daliyat al-Karmel, near Haifa.  Deputy Regional Cooperation Minister Ayoob Kara, who also heads the implementation of the government’s efforts to develop the Druze and Bedouin sectors in Israel, was present at the ceremony.  The academy, he said, illustrates how “the Druze and the Jews are in essence one people that decided to come together to sanctify the values of life, democracy, freedom of expression, religion and movement and this is what our sons are fighting for, every hour of every day.”  Kara described the alliance as the safeguard protecting Israel’s Jews and Druze, even in very problematic areas.  Sixty cadets are training and studying at the academy this year.  (IH 06.10)

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7.3  Kuwait Ruler Dissolves Parliament Amid Regional Developments

Kuwait’s emir ordered the dissolution of parliament on 16 October, saying regional developments and “security challenges” meant the national assembly should choose fresh representatives.  The order was contained in a decree by Sheikh Sabah al-Ahmad al-Sabah and elections now need to be held under constitutional rules.  The decree said the move was linked to regional developments that require returning to the people – the origin of authority – to choose its representatives to express its directions, ambitions and contribute to facing these challenges.  Kuwait has a relatively open political system by Gulf standards and has avoided an uprising like those that have ousted leaders in several Arab states since 2011.  Political stability in Kuwait, a leading OPEC oil producer and exporter, has traditionally depended on cooperation between the government and parliament, the oldest and most powerful legislature in the Gulf Arab states.  Liberals and candidates from some of Kuwait’s more marginalized tribes won seats in the last election in 2013, after opposition Islamists and populists boycotted the election.  (AB 16.10)

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7.4  Most University Students Don’t Want to Leave UAE

Nearly 69% of university students in the UAE want to stay in the country with one in five expat students hoping to become entrepreneurs, the “2016 Qudurat Wave III” report said.  Commissioned by Aon Hewitt and Dubai International Academic City, these numbers had risen by 19%, which was the highest since 2013, with 84% of students being satisfied with their course of study.  A 36% decline was registered with Emirati students who wanted to pursue a career in the public sector as only 17% opted to work for the government compared to 53% in 2015.  About 26% of Emiratis said they wanted to start their own business, while 22% wanted to work in the semi-government sector.

Of the Emirati female students surveyed, none of them wanted to become a homemaker with the majority wanting to study further or start their own business.  Expatriate students largely preferred to pursue a career in the private sector with one in every five expats choosing to go down the entrepreneurial route post completion of their studies.  Data for the Qudurat report, which means ’capabilities’ in Arabic, was collected from 996 national, transnational and resident students enrolled at 10 academic institutions across Dubai.  (Various 09.10)

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7.5  Islamists Beat Liberals in Morocco Elections

Morocco’s ruling Islamists have beaten their liberal rivals in parliamentary elections five years after sweeping to power following Arab Spring-inspired protests, results showed on 8 October.  Prime Minister Abdelilah Benkirane’s Islamist Justice and Development Party (PJD) took 125 seats out of 395 on the 7 October polls.  Its main rival, the Authenticity and Modernity Party (PAM), which had campaigned against the “Islamisation” of Moroccan society, won 102 seats.

The PJD’s rise to power in 2011 after King Mohammed VI relinquished some of his powers following street protests brought hopes of change in the North African country.  The PJD was the first Islamist party to win a national election and the first to lead a government, albeit with coalition partners after failing to win an outright majority.

Apart from the two main parties, Istiqlal, which historically fought for independence from France, came third with 45 seats.  Nine other parties also won seats, including the National Gathering of Independents which took 37 and the Federation of the Democratic Left which clinched two.

Over the past five years his PJD has been weakened by rising unemployment and plummeting growth while critics said it failed to make good on promises to tackle corruption.  The PJD also faced a string of scandals within its ranks including a drugs bust, a land-grab deal and the suspension of two vice presidents found in a “sexual position” on a beach.  The PAM, formed in 2008 by a close adviser to the king, had hoped to take advantage in the poll and despite coming in second place more than doubled the number of its seats in the future parliament.  The PJD and the PAM have ruled out joining forces in a grand coalition.  (AFP 09.10)

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8.1  Teva & Celltrion Announce Exclusive Biosimilar Commercial Partnership

Teva Pharmaceutical Industries and South Korea’s Celltrion and Celltrion Healthcare announced they have entered into an exclusive partnership to commercialize two of Celltrion’s mAb biosimilar candidates in the U.S. and Canada.  CT-P10 is a proposed mAb biosimilar to Rituxan (rituximab), which is used to treat patients with Non-Hodgkin’s Lymphoma (NHL), Chronic Lymphocytic Leukemia (CLL), Rheumatoid Arthritis (RA), Wegener’s Granulomatosis and Microscopic Polyangiitis (MPA).  CT-P6 is a proposed mAb biosimilar to Herceptin (trastuzumab), which is used for the treatment of HER2-overexpressing breast cancer and for the treatment of HER2-overexpressing metastatic gastric or gastroesophageal junction adenocarcinoma.

Both CT-P10 and CT-P6 are currently in late-stage Phase III development and their primary endpoints have been successfully achieved. CT-P10 was submitted by Celltrion to the European Medicines Agency (EMA) for review in October 2015.  In the meantime, Celltrion is preparing CT-P6 for submission in Europe seeking approval from the EMA this quarter.  As part of the agreement, Teva will be responsible for all commercial activities in the U.S. and Canada, pending regulatory approvals for both products.  Celltrion has responsibility for completing all clinical development and regulatory activities.  Under the terms of the agreement, Teva will pay Celltrion Healthcare $160 million upfront of which up to $60 million is refundable or creditable under certain circumstances.  Teva and Celltrion Healthcare will share profit from the commercialization of the mAb biosimilars.

Teva Pharmaceutical Industries is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions used by millions of patients every day.  Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,800 molecules to produce a wide range of generic products in nearly every therapeutic area.  (Teva 06.10)

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8.2  Israeli Wines Gain International Recognition

For the first time ever, the magazine Wine Spectator will dedicate its 15 October cover to Israeli Wines, writing “surprising quality from an emerging region.”  This step has far reaching implications for the Israeli wine industry in particular, and possibly for the entire country as a whole.

The story begins with Wine Spectator Editor Kim Marcus’s trip to Israel, which included wine tasting tours all over the Jewish state.  He was looking for wines to bring back to his editorial staff that holds a round table blind taste test of different wines from different wineries from all over the world.  The magazine will publish a list of Israeli wines compiled by the magazine, including 110 wines who were ranked between “very good” and “exceptional” by the magazine.

The list includes a wide variety of wines, proving that the Israeli wine industry is an industry which never sleeps.  There were red wines, whites, sparkling wines, and popular blends such as Merlots and Cabernet Sauvignons.  This, along with pieces on different wines made of Mediterranean grapes, such as Carignan Raslan, and local Israeli grape varieties such as Ravi and Hamdani.

The wineries featured in the magazine include: 1848, Agur, Alexander, Asaf, Barkan, Carmel, Clos de Gat, Crimson, Dalton, Flam, Harei Galil, Ramat Hagolan Winery, Gva’ot, Tavor, Recanati, Tulip and Tzora, Capsuoto, Karmei Yosef, Kishur, Margalit, Matar, Midbar, Or Haganoz, Pelter, Psagot, Segel, Shiloh, Kerem Shevo, Sumak, Teperberg, and Tzora, amongst others.

There were 23 wines were awarded 90 points or more, with the highest ranked wine – Tzora Winery’s Misty Hills – being awarded 93 points.  Perhaps the most surprising finding was that white wines comprised approximately 40% of the list of Israeli wines scoring over 90 points, especially in light of the fact that white wine producers constantly complain how hard it is for them to make the product.  It’ s impossible not to recognize two special white wines which each received 90 points; Marawai from Recanti Winery in Hebron and the Hamdani-Jandali from the Crimson Winery in Bethlehem. These wines are made from the same types of grapes that were used in wine production in biblical times thousands of years ago.  (Ynetnews 08.10)

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8.3  Zebra Medical Vision Announces New Algorithm for Better Breast Cancer Diagnosis

Zebra Medical Vision announced a new software algorithm using machine and deep learning for detecting breast cancer.  The algorithm provides superior results compared to current tools, reducing misdiagnosis and false alarms.  The researcher behind the algorithm, Phil Teare, lost his wife to cancer at an early age, and taught himself machine learning so he could recruit machines to the battle against the disease.  Zebra’s new algorithm helps provide better outcomes in two keys ways by reducing both false negatives and false positives.  Less false negatives results in accurately detecting women with cancer, and fewer false positives means women will not have to undergo unnecessary tests and stressful procedures.

The mammography algorithm will be added to the company’s growing list of clinical algorithms which are part of an analytics engine that uses machine and deep learning to automatically read and diagnose medical imaging data.  The Zebra engine has already yielded imaging insights that have been validated using hundreds of thousands of cases.  Current algorithms are in the fields of bone health, cardiovascular analysis, liver and lung indications, and now mammography.

From research to reality and commercialization, Kibbutz Shefayim’s Zebra Medical Vision uses big data to deliver large scale clinical research platforms and next generation imaging analytics services to the healthcare industry.  Its Imaging Analytics allow healthcare institutions to identify patients at risk of disease, and offer improved, preventative treatment pathways to improve patient care.  The Zebra Research Platform provides researchers the largest structured clinical data set globally, and makes it available for research, including a complete development, hosting, storage and computing environment, and follow-on regulatory and commercialization services. The company was founded in 2014.  (Zebra Medical 12.10)

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8.4  Teva Announces Launch of Generic Beyaz in the United States

Teva Pharmaceutical Industries announced the launch of Rajanitm (drospirenone, ethinyl estradiol and levomefolate calcium tablets, 3 mg/0.02 mg/0.451 mg and levomefolate calcium tablets, 0.451 mg) in the United States.  Rajanitm, the generic equivalent of Beyaz1, is an oral contraceptive, available in a 28-day blister pack dispenser.  Teva is committed to strengthening its generics business through continued investment in complex, high-quality products. With nearly 600 generic medicines available, Teva has the largest portfolio of FDA-approved generic products on the market.  This product enhances Teva’s already comprehensive oral contraceptive portfolio.

Teva Pharmaceutical Industries is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions used by millions of patients every day.  Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,800 molecules to produce a wide range of generic products in nearly every therapeutic area.  (Teva 12.10)

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8.5  Humavox & Starkey Bring Wireless Charging to Hearing and Audio Devices

Humavox is partnering with Minnesota’s Starkey Hearing Technologies in order to advance the next generation of audio devices with the introduction of wireless charging.  Together, they will simplify the lives of hearing technology consumers by allowing users to bypass the often impossible task of changing very small disposable batteries within tiny devices.

By integrating Humavox’s wireless charging into Starkey’s advanced hearing devices, the companies are enabling the transition from disposable batteries to rechargeable batteries, which will redefine the user experience.  No longer will users have to fumble with their devices in order to change the disposable batteries.  Instead, users will be able to simply drop their hearing device in its case and, regardless of its orientation in that case, the device will be recharged seamlessly.

As part of their collaboration, Starkey Hearing Technologies will integrate Humavox’s wireless charging technology within a variety of devices from its family of wireless hearing technology brands, including the most advanced and comprehensive hearing solutions available.  The technology developed by Humavox fits not only standard hearing devices (e.g. BTEs and RICs), but also custom devices, wireless earbuds, hearables and personal audio amplifiers, that are smaller and unique in shape and therefore pose a challenge in integrating recharging capability.

Kfar Saba’s Humavox is an innovative developer of groundbreaking technology in the field of wireless power.  With its ETERNA platform, Humavox uses near-field radio frequency (RF) technology, and provides users with a simple and intuitive charging experience (“drop & charge”).  The technology can be implemented in the smallest of devices, such as hearables, wearables and IoT devices.  (Humavox 18.10)

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9.1  LightCyber’s Free Purple Team Assessment Tests Data Breach Readiness

LightCyber is partnering with leading security consulting firms to provide free Purple Team Assessment for determining “data breach fitness” and assess an organization’s ability to detect active network attackers.  The exercise combines the Red Team attack simulation by the partner with a Blue Team evaluation using LightCyber Magna Behavioral Attack Detection.  The free offer is available through the remainder of 2016.

As part of the assessment, an experienced Red Team tester from partner service providers will execute covert network attacks, focusing on reconnaissance, lateral movement and data exfiltration.  The Red Team tester will utilize the tools, tactics and procedures of real threat actors to simulate an advanced attack and uncover weaknesses in systems and applications while remaining hidden.  Prior to the Red Team activities, LightCyber will deploy its Magna Behavioral appliance in the organization’s network to perform the Blue Team function by monitoring activity and learning the expected behavior of all users and devices.  Then, during the attack simulation, one can see if Magna detects the red team attack.  At the same time, the exercise checks whether existing infrastructure—such as firewalls, intrusion prevention systems and other security solutions—can spot the malicious activity.

Ramat Gan’s LightCyber is a leading provider of Behavioral Attack Detection solutions that provide accurate and efficient security visibility into attacks that have slipped through the cracks of traditional security controls.  The LightCyber Magna platform is the first security product to integrate user, network and endpoint context to provide security visibility into a range of attack activity.  (LightCyber 05.10)

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9.2  Browsi Officially Launches its Automatic Mobile Page Yield Engine

Browsi officially released its automatic mobile web monetization engine, offering publishers an autonomous, seamless platform to discover untapped, incremental revenue opportunities in their mobile web pages, without involving internal resources or compromising user engagement.  Easily implemented, Browsi engine scans multiple page elements in real time to detect the under monetized articles.  Once such an opportunity is detected, additional placements are created and yield optimized ads are served, generating new, additional revenue.  Working with Browsi, publishers improve their overall pages’ RPMs by 20%-50% every month.

Browsi’s proprietary Revenue brain, is connected to the top programmatic demand partners such as DoubleClick AdX, OpenX, SOVRN, AppNexus, Pulsepoint, Smatto, and more.  In the past 9 months Browsi has started working with several publishers such as Vice, Reader’s Digest, Minute Media (90min), American Media Inc, Terra, AXS, Christian Post, and more, making sure the offering is wrinkle-free and is indeed bringing the expected value to publishers.

Tel Aviv’s Browsi is an automatic monetization engine enabling publishers to generate additional new revenues on any mobile web page.  Browsi was established in 2015 by ad tech industry veterans.  As such the company is product oriented with a strong related heritage and expertise in advertising technology.  Browsi is backed by major investors, led by Pitango VC (Taboola, Via and more) and Avantis.  (Browsi 06.10)

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9.3  Comprendi Wins $250,000 Grand Prize in Twitter #Promote Ads API Challenge

Comprendi is the grand prize winner of the Twitter #Promote Ads API Challenge for its groundbreaking advertising automation solution driven by artificial intelligence and big data.  At an awards ceremony held at Twitter headquarters in San Francisco, Comprendi was recognized for its new Adaptive Creative technology powered by the Twitter Ads API and Twitter’s unique Firehose data API.

The #Promote Ads API Challenge is one of the ways in which Twitter encourages innovation in the advertising technology ecosystem, and it provides the developer community with a great opportunity to build the most effective marketing tools using the Twitter Ads API.

Comprendi offers global advertisers an automated audience discovery platform that reaches contextually relevant and long-tail audiences at scale.  Now, with the addition of the newly launched Adaptive Creative technology, advertisers can automatically customize and personalize ads in real time based on a variety of real-world signals such as weather changes, sports results, trending topics on Twitter and more.

Tel Aviv’s Comprendi helps advertisers harness the power of textual big data to build more effective, hyper targeted campaigns on New Media (Twitter, Facebook, OTT messaging).  Using proprietary Natural Language Processing and Deep Learning algorithms Comprendi has proven to consistently improve ROI and reach by orders of magnitude for large-scale mobile app, direct response and brand advertisers.  (Comprendi 27.09)

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9.4  Airbus Standardizes on Stratasys Solutions for A350 XWB Aircraft Supply Chain

Stratasys announced that Airbus has standardized on its ULTEM 9085 3D printing material for the production of flight parts for its A350 XWB aircraft.  Stratasys’ ULTEM 9085 resin is certified to an Airbus material specification and is used in Stratasys’ FDM (Fused Deposition Modelling) based additive manufacturing solutions.  By combining a high strength-to-weight ratio with FST (flame, smoke, and toxicity) compliance for aircraft flight parts, ULTEM 9085 enables the production of strong, lighter weight parts while substantially lowering manufacturing costs and production time.

Additive manufacturing brings new levels of efficiency and flexibility to production supply chains by enabling parts to be produced on demand and at locations optimized for delivery to final assembly lines. It also significantly improves the buy-to-fly ratio as less material is wasted compared to conventional manufacturing methods.

For more than 25 years, Stratasys has been a defining force and dominant player in 3D printing and additive manufacturing – shaping the way things are made. Headquartered in Minneapolis, Minnesota and Rehovot, Israel, the company empowers customers across a broad range of vertical markets by enabling new paradigms for design and manufacturing.  The company’s solutions provide customers with unmatched design freedom and manufacturing flexibility – reducing time-to-market and lowering development costs, while improving designs and communications.  (Stratasys 13.10)

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9.5  Celeno & NXP Collaborate to Deliver Whole Home Multi Gigabit Wi-Fi to Market

Celeno Communications announced a joint reference system with the Netherlands’ NXP Semiconductors for the development of high-end gateways and smart Wi-Fi extenders.  The resulting products will enable service providers and equipment vendors to deliver flawless, self-organized and self-managed multi-gigabit whole home Wi-Fi services, a necessity in the modern home.  The new joint reference system is based upon a distributed access point architecture that augments the home gateway with Wi-Fi extenders connected via a wired or wireless backbone.  The reference system gateway and extender components are a combination of NXP’s LS1012A and LS1043A SoC Platforms, and Celeno’s 11ac and 11n Wi-Fi chipsets, enabling a range of configurations from cost-effective 2×2 Wi-Fi extenders up to high-performance 4×4 Wi-Fi gateways and extenders.  Combined with Celeno’s ControlAIR software for device orchestration, this reference system places a whole-home, self-organized Wi-Fi solution within reach.

Ra’anana’s Celeno is the leading provider of smart, managed Wi-Fi solutions.  Celeno’s extensive 802.11ac chip portfolio and ground-breaking software technologies are designed to excel in real life, highly-interfered dense network scenarios, delivering the level of management, performance, speed, coverage, reliability and superlative user experience demanded by Wi-Fi users.  Celeno’s field-proven chips and software technology have been successfully integrated into numerous OEM Wi-Fi devices and have been deployed in tens of millions of homes around the world by almost 100 leading service providers worldwide.  (Celeno 17.10)

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10.1  Israel’s CPI Fell by 0.1% During September

The Central Bureau of Statistics announced that Israel’s Consumer Price Index (CPI) fell by 0.1% in September, in line with forecasts.  This is the second consecutive month that the CPI has fallen, after falling 0.3% in August, although it rose for the previous four consecutive months before that.  Over the past 12 months, the CPI has fallen 0.4% – well below the government’s inflation target range of between 1% and 3%, and it is unchanged since the beginning of 2016.  Prominent price falls in September included fresh fruit (6.7%), culture (1.4%) and clothing (1.3%).  Prominent price rises included footwear (2%) and fresh vegetables (1.8%).  The housing price index, published separately from the CPI, showed that home prices rose 0.4% in July and August, and have risen 6.8% over the past 12 months.  (CBS 14.10)

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10.2  Israel’s Economic Growth Rate Stands at 4.3%

The Central Bureau of Statistics announced on 13 October that it was updating its annualized growth projection for 2016 to 4.3%.  It is the third CBS growth projection update since January, and represents an increase of 0.3% over the previously projected annualized growth in the GDP.  According to the CBS, in H1/16, GDP rose by 3.2%, reflecting a 9.9% increase in private consumption, an 8.6% rise in public consumption, and a 13.7% rise in exports of goods and services.  The government’s civilian spending increased by 3.7%, while defense spending was up by 2.4%, the updated data showed.  The overall GDP resources available to the economy between January and June this year were set at 5%, double their availability in H1/15.

The rise in the standard of living in Israel was reflected in private consumption:  Annualized spending on food, beverages, cigarettes, and alcohol increased by 5.3% per capita in H1/16; investment in financial instruments was up 8.4%; household spending on furniture, appliances, and private vehicles surged by 21.4%, and household spending on jewelry was up 9.9%.  (CBS 14.10)

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10.3  Israeli Exports to Africa Rise as Exports to China Fall

Israel has been exporting more to Africa as the continent experiences significant economic growth and as the Chinese economy begins to weaken.  The Israel Foreign Trade Risks Insurance Corporation (ASHRA) has approved 28 deals to be covered by the insurance corporation.  The deals amount to approximately $1.05 billion dollars.  FY2015 only saw 17 deals approved, amounting to $623 million.

The number of Israeli trade deals with African nations which were followed through on in 2015 was four, and amounted to $312 million.  However, a recent Ashra survey showed that approximately a quarter of all Israeli exporters believe that the African market is the most attractive market to expand operations in.

Meanwhile, there has been a notable decrease in the amount of exports to China. Only 15 new contracts were approved over the past year, compared to 33 the year before. The financial scope of the deals were also lower – approximately $190 million in 2015 compared to $438.5 million the year before.  The majority of exports to China were agricultural or infrastructure related.  However, over the past year, there was a significant rise in security exports, with 22 requests receiving approval for insurance coverage.  This constitutes an 83% rise compared to the previous year.  Amongst the security companies who received insurance approvals for export to China were Elbit, Rafael, Israel Aerospace Industries, Elta and Aeronautics.  (ASHRA 16.10)

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10.4  Israel’s Tax Collection Surplus Exceeds Predictions

The Ministry of Finance announced on 9 October that Israel’s tax collection surplus over the first nine months of 2016 was NIS 6 billion, higher than the NIS 5.8 billion predicted.  Tax collection is up 6-7% in 2016, compared with the corresponding period of 2015.  In September, tax collection totaled NIS 25.3 billion, up 13.1% from September 2015.  The jump in tax collection was accentuated by the fact that all the High Holydays this year fall in October, meaning there were more business days in September this year than last year.  Tax collection in September from the capital market was NIS 316 million, up 36.2%.  However, since the start of 2016, tax collected from Tel Aviv Stock Exchange activities has fallen 36% due to lower trading turnovers.

Tax collection in September from real estate was NIS 900 million, down 5% from last year in terms of betterment tax but up 14% in terms of purchase tax.  Indirect taxes in September totaled NIS 12.5 billion, up from NIS 11 billion in September 2015.

The budget deficit for September was NIS 800 million with a deficit of NIS 6.1 billion for the first nine months of the year, compared with NIS 4.5 billion in the corresponding period of last year.  The planned budget deficit for 2016 is NIS 35 billion, or 2.9% of GDP, while the budget deficit over the past 12 months has totaled only 2% of GDP.  (MoF 09.10)

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10.5  Israel’s Foreign Exchange Reserves Nearing $100 Billion

The Bank of Israel announced that Israel’s foreign exchange reserves at the end of September 2016 rose to a record $98.415 billion at the end of September, increasing by $789 million from the end of August.  The increase was the result of foreign currency purchases by the Bank of Israel totaling $575 million as the central bank attempted to assist Israeli exporters by tempering the strength of the shekel.  In addition, government transfers from abroad totaled $148 million and a revaluation increased the reserves by about $210 million.  These were partly offset by private sector transfers totaling about $144 million.  Israel’s foreign currency reserves have risen from $89.5 billion 12 months ago and $90.5 billion at the beginning of 2016.  (BoI 06.10)

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10.6  Israel’s Public Transport Passengers Rise by 7% in 2016

The number of passengers on public transportation in Israel rose 7.2% in the first eight months of 2016, according to figures published by the Ministry of Transport Public Transport Department.  The number of those traveling on buses rose by 6.5% and those traveling on trains increased by 15.2%.  There were 487 million bus trips and 41 million train trips.  The number of those using public transportation jumped by 10.1% in August, compared with August 2015.  Minister of Transport Katz said that the figures were very significant for the economy, because according to the Trajtenberg Report, a 1% rise in the number of travelers on public transportation saves the economy NIS 400 million.

Katz argued that the public transportation price reform launched early this year at a cost of NIS 200 million was the main factor in increasing the number of passengers.  He added that other factors in the growth of public transportation were the initiation of new routes, greater frequency on existing routes, the possibility of entering buses from the rear on many routes and technological improvements that made public transportation easier and more comfortable.  (Globes 05.10)

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10.7  OECD Report Finds 50% Decrease in Israeli Road Accident Fatalities

Israel leads Organization for Economic Cooperation and Development countries in the rate of decline in the number of people killed while driving in private cars or riding bicycles in the years 2010 to 2014, the Transportation Ministry announced on 6 October.  The OECD report said Israel has succeeded in decreasing the number of people killed in cars by 50% – more than any other member country.  In second place is Greece with a 48% decrease, followed by Spain and Portugal, each with a 40% decrease.  Cyclist fatalities in Israel have also declined 48%.  In contrast, the cyclist fatality rate is actually increasing in the majority of OECD countries.  One of the factors that contributed to the decline in fatalities is the ministry’s decision, beginning in 2010, to require advanced safety systems in cars.  (MoT 06.10)

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10.8  Israel Has One of Lowest Pension Payouts in OECD

The annual welfare report released on 10 October by National Insurance Institute (NII) of Israel found that Israel is ranked among the lowest countries of the OECD, only above Chile, Mexico and South Korea, in terms of the welfare support it offers its citizens.  The report also found that children’s and senior citizens’ welfare, in addition to unemployment, are among the lowest in the Western world.

According to the report, in 2015, the local social security system was mildly strengthened.  The 2013 cuts to child benefits were cancelled and the money lost from May 2015 until present day was returned retroactively.  This was done both by increasing child benefits and by starting a NIS 50 a month savings plan for each child.  However, Israel still ranks exceedingly poorly on the hierarchy of welfare expenditure.

The yearly report also showed that while children are the poorest sector of Israeli society, millennials – those between the ages of 18-25 – were the poorest sector of the majority of developed countries.

The NII meanwhile paid out approximately NIS 74.2 billion in 2015, compared to NIS 71.6 billion in 2014.  This figure includes NIS 1.5 billion to various government agencies for different community development projects, along with the operating expenses for the social security system.

Israel invested 16.1% of its GDP in health and welfare services.  More than half of the expenditures were towards pension payments (equaling approximately 8.7% of the GDP), while the rest (7.2% of the GDP) went to went to public services, primarily public health services.  The report shows that a child in Israel has a one in four chance of being poor, which is the highest probability compared to other age groups.  The report also showed that the amount of people living in poverty in Israel is 74% above the OECD average.  Additionally, Israel’s poverty rate in all age groups is higher than the poverty rate of most of the other countries.  The only exception was amongst those in the 51-65 year old age group, where the rate is similar to that in other countries.  (Various 16.10)

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11.1  SAUDI ARABIA:  Ratings on Saudi Arabia Affirmed At ‘A-/A-2’; Outlook Stable

On 7 October, S&P Global Ratings affirmed its ‘A-/A-2’ unsolicited long- and short-term foreign and local currency sovereign credit ratings on the Kingdom of Saudi Arabia.  The outlook is stable.


The ratings on Saudi Arabia are supported by its strong external and fiscal stock positions, which we expect will be maintained despite significant current account and fiscal deficits.  The ratings are constrained by limited public sector transparency, lower GDP per capita relative to similarly rated sovereigns, and constrained monetary flexibility.

We project that, reflecting the sharp decline in oil prices since the summer of 2014, the general government deficit will average about 9% of GDP in 2016-2019.  Our forecast for the annual change in general government debt (which is our preferred fiscal metric because in most cases it is more comprehensive than the reported headline deficit) is for an average increase of about 5% of GDP.  In the case of Saudi Arabia, the change in general government debt is lower than the deficit as we have assumed an even split between asset draw-downs and debt issuance in terms of deficit financing.  We acknowledge both upside potential and downside risk to these forecasts.  Upside potential stems principally from oil prices.  The downside rests with the scale of the required fiscal consolidation and the broader impact it will likely have on the economy.

Highlighting the government’s difficult policy choices, we note evidence that lower government spending is adversely affecting the country’s private sector.  In particular, there have been reports of a rise in public arrears to private sector construction companies.  As a result, companies have been cutting their workforce and withholding salaries.  We expect banking sector asset quality to deteriorate but not sufficiently to endanger system solvency, owing to countercyclical buffers the regulator has imposed in recent years.

Our base case assumes that large construction companies such as Saudi Oger and Saudi Binladin Group, which are currently experiencing financial difficulties, do not default on loans to the Saudi banking system.  The building and construction sector accounts for about 8% of total loans, equivalent to roughly one-third of the banking sector’s capital base.  Banks’ nonperforming loan ratios are around 1.0%-1.5%, which we expect will rise to 3%-4% over the next two years.  We classify the banking sector of Saudi Arabia in group ‘4’ under our Banking Industry Country Risk Assessment methodology, with ‘1’ indicating the lowest risk and ’10’ the highest.

Bank deposits have decreased and liquidity conditions have tightened, with interbank rates almost tripling since early 2015 to above 250 basis points (3-month SAIBOR).  As a result of the increase in the cost of funding, we expect banks’ profitability to come under pressure.  On 26 September 2016, the Saudi Arabian Monetary Agency (SAMA) stepped up efforts to provide liquidity, giving banks about 20 billion Saudi riyals (SAR) of time deposits “on behalf of government entities.”  SAMA’s action follows prior deposit injections of about SAR15 billion earlier in 2016. SAMA also introduced seven-day and 28-day repurchase agreements, to allow banks better access to short-term borrowing at lower and more stable cost.  We note that the majority of banks continue to rely on funding from non-interest-bearing deposits rather than wholesale funds.

The government’s withdrawal of deposits and domestic issuance of around SAR20 billion in debt each month since August 2015, partly absorbed by Saudi banks, has added pressure to banking system liquidity.  To diversify funding sources and improve domestic banks’ liquidity conditions, the government issued a $10 billion syndicated loan earlier in the year and is also expected to issue a $10 billion-$15 billion Eurobond later this year.  Foreign currency debt sales should also help to slow (but not reverse) the expected gradual decline in foreign exchange reserves over the next several years.  We expect reserve levels to cover about two years of current account payments on average over 2016-2019.

The government has budgeted for a central government deficit of about 13% of GDP in 2016, compared with an outturn of 15% in 2015, with 2016 revenues falling by 16% and expenditures by 14% compared with 2015.  Our reported general government balance now includes an estimate of investment income.  We previously included this financial flow directly in our estimate of general government liquid assets.  This reclassification of investment income has not affected our overall assessment of Saudi Arabia’s public finances, but results in the difference between our central government and general government deficit projections.

We believe the authorities have based the budget on an oil price of about $45 per barrel.  We have included the government’s 2016 budget measures in our assumptions.  These include postponing some capital spending projects, increasing non-oil revenues, and controlling current expenditures.  The government has embarked on a program of subsidy reform, with fuel, water, and electricity prices set to rise gradually over the next five years.  As a result, we understand it will reduce subsidies, which had amounted to about 8% of GDP in 2015.  Concurrently, through these increased utility tariffs, we expect to see stronger profitability at government-related entities, in turn resulting in higher dividends for the government.

On the revenue side, the imposition of taxes on undeveloped plots of land in urban areas should raise revenue and encourage private investment.  We understand the tax will be deposited at a special account at SAMA, with proceeds used to fund housing projects.  The government has established a support provision line within the budget of SAR183 billion (8% of GDP or $49 billion equivalent), which it could use to redirect capital and operating expenditures to both ongoing and new projects and to meet any emerging expenditure needs.  We expect the introduction of value-added tax to be a medium-term project, in line with discussions already under way with other members of the Gulf Cooperation Council customs union (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates).

We note, however, the strong signal of intent provided by the government in late September in support of the National Transformation Program 2020 (NTP) target of reducing public sector wages to 40% of total spending.  The government announced the reduction or ending of some bonuses and financial benefits for state employees and the reduction of ministers’ and Shura Council members’ salaries by 20% and 15%, respectively.  Salaries of lower ranking civil servants are expected to be largely frozen, and a cap placed on overtime payments and annual leave.  The new rules are expected to come into force in October 2016. In our view, these measures should moderate the government wage bill over the medium-term.

Over the next three years, we expect Saudi Arabia will finance its deficits by drawing down fiscal assets and issuing debt.  Such a split implies that Saudi Arabia would report gross liquid financial assets of 105% of GDP by 2019, versus 123% at year-end 2016.  These fiscal assets include the central government’s deposits and reserves on the liabilities side of the balance sheet of SAMA, government institutions’ deposits, and an estimate of investment income.  We also include in the calculation an estimate of government pension funds’ liquid assets.

The Council of Ministers announced the highly ambitious NTP in June 2016.  The program provides more substance to the Vision 2030 announcement earlier in April.  The NTP provides more detailed targets for the next four years, laying out 178 strategic objectives with more than 340 indicators and targets set for 24 ministries and government entities.  In our view, the program is very ambitious although it could result in an acceleration in economic growth and an overall rebalancing of the economy over the medium-term.  However, the timing and completeness of any such structural improvements will depend on the achievement of challenging targets over a number of years.  At this time, we have not factored in any specific effects from the NTP into our forecasts.

Among other things, the NTP aims to: diversify the economy away from oil; create more than 450,000 jobs in the nongovernmental sectors by 2020; increase the private sector’s share of GDP to 60% from 40% in 2014; increase the female participation rate to 30% from 22%; achieve a balanced budget by 2020 partly by reducing government spending on public-sector wages to 40% of total spending by 2020 from 45% today; increase non-oil revenue through taxes on land, the introduction of a value-added tax, excise taxes on tobacco and soft drinks, as well as fees on certain public services; reform the education system; and raise Saudi homeownership rate to 52% by 2020 from 47% currently, thus easing the housing shortage caused by the rapidly increasing population.  The NTP also plans more than 130 initiatives to be financed mostly by the private sector.

The total budgeted government cost for NTP initiatives is SAR268.4 billion (12% of GDP), with the private sector targeted to contribute the remaining 40%, or SAR179 billion (8%).  In our view, the very ambitious agenda of reform could be difficult to achieve in an environment of weak economic activity and in relation to Saudi Arabia’s socially conservative cultural norms.

Oil major Saudi Aramco has also confirmed that it has been studying various options to allow broad public participation in its equity through a secondary IPO, either of itself or a bundle of its downstream subsidiaries.  On 1 April 2016, Deputy Crown Prince Mohammed bin Salman was reported in the media as saying that “less than 5%” of Saudi Aramco could be sold before 2019 and that ownership of the remaining shares could be transferred to the Public Investment Fund.  As these plans are still in formation, we have not factored proceeds from an IPO into our projections.

Although Saudi Arabia’s fiscal profile has weakened on a flow basis, we believe it has remained strong on a stock basis. Net general government assets (that is, the excess of liquid fiscal financial assets over government debt) peaked at 123% of GDP in 2015 (partly due to the estimated 17% decline in nominal GDP).  We forecast that the government’s net asset position could decrease to 85% of GDP in 2019. Consequently, we believe Saudi Arabia is entering a period of adverse terms of trade from a strong position.

In Saudi Arabia, we estimate the hydrocarbon sector accounted for about 28% of nominal GDP in 2015, down from 42% in 2014, due to the sharp fall in oil prices.  Before the drop, the sector represented about 80% of exports and three-quarters of government revenues.  Incorporating our oil price assumptions, we project real GDP growth to average 2% a year in 2016-2019, while our GDP per capita estimate for 2016 is $18,700.  We anticipate that the GDP deflator will remain negative in 2016, at minus 8%, alongside population growth of about 2%.  We estimate that trend growth in real per capita GDP (which we proxy by using 10-year weighted-average growth) will amount to about 0.6% during 2010-2019, which is below that of peers that have similar GDP per capita.

We anticipate a current account deficit equivalent to 12% of GDP in 2016.  Saudi Arabia’s external accounts mirror, in many ways, its fiscal accounts.  Like the fiscal accounts, they shift based on prices of hydrocarbons.  Similar to its fiscal position, Saudi Arabia maintains strong external buffers.  We expect Saudi Arabia’s liquid external assets, net of external debt, will average about 240% of current account receipts (CARs) over 2016-2019.  The kingdom’s gross external financing needs are slightly above 40% of the sum of usable reserves and CARs over 2016-2019, suggesting ample external liquidity.  That said, reserves declined to $562 billion in August 2016, compared with $661 billion in August 2015. We estimate reserve coverage (including government external liquid assets) at 115% of the monetary base and 22 months of current account payments in 2019.

King Salman acceded to the throne in January 2015.  He is the sixth son of King Abdulaziz Al-Saud, who established the kingdom in 1932.  In April, King Salman named his nephew, Interior Minister Nayef, as crown prince, first in line to the throne.  The king has also named his son, Defense Minister Salman, to the position of deputy crown prince and consequently second in line to the throne.

We analyze Saudi Arabia as an absolute monarchy in which decision-making resides with the king and the ruling family.  In our view, the opacity of decision-making and reconciling intra-family issues around succession and emoluments reduce the predictability, timeliness, and effectiveness of the kingdom’s economic policy choices.  Two new councils, the Council for Political and Security Affairs and the Council for Economic and Development Affairs, have been created to form government policy more efficiently.  Power is devolved to the crown prince and deputy crown prince, who respectively head these two bodies.  The king approves the decisions of the councils.  Broader institutional checks and balances are still at incipient stages of development.

Given the Saudi riyal’s peg to the U.S. dollar, we view monetary policy flexibility as limited.  The long-standing currency peg helps to anchor the population’s inflation expectations, but binds Saudi Arabia’s monetary policy to that of the U.S. Federal Reserve.  We expect that the peg will be maintained.  At a time of already significant change and regional geopolitical instability, politically conservative regimes such as those in the GCC are unlikely to increase uncertainty about their economic stability by amending this fundamental macroeconomic policy.  Consequently, the riyal’s real effective exchange rate has appreciated by 16% since early 2014 and stands approximately 40% over the December 2007 level, according to Bruegel data.  The riyal’s long-term real effective appreciation since 2007 has been the most pronounced among all GCC sovereigns.  In our view, this indicates an ongoing deterioration of international competitiveness of the country’s modest tradables sector, which is likely to dampen non-oil GDP growth, absent any offsetting factors such as improved efficiency or technological capacity.


The stable outlook on Saudi Arabia reflects our expectation that the Saudi authorities will take steps to prevent any deterioration in the government’s fiscal position beyond our current expectations, over the next two years.

We could lower our ratings if we observed further deterioration in Saudi Arabia’s public finances.  Such fiscal weakening could entail prolonged double-digit GDP deficits, a quicker drawdown of fiscal assets, or an unexpected materialization of contingent liabilities.  The ratings could also come under pressure if we observed a significant increase in domestic or regional political instability or a renewed marked weakening of terms of trade.

We could raise the ratings if Saudi Arabia’s economic growth prospects improved markedly beyond our current assumptions.  (S&P 07.10)

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11.2  MOROCCO:  Morocco Ratings Affirmed At ‘BBB-/A-3’; Outlook Stable

On 7 October 2016, S&P Global Ratings affirmed its ‘BBB-/A-3’ long- and short-term foreign and local currency sovereign credit ratings on the Kingdom of Morocco.  The outlook is stable.


The ratings on Morocco are supported by political and social stability, economic growth prospects, and a moderate government debt burden.  The ratings remain constrained by lower GDP per capita relative to similarly rated sovereigns, high social needs, a relatively high external liability position, and the deterioration in external and fiscal debt stocks in recent years.

During a period of widespread social and political upheaval, Morocco has demonstrated sociopolitical stability and economic resilience in the regional context of the Arab Spring.  We expect continued political stability under King Mohammed VI, who is the most important and popular political figure in Morocco.  The current multiparty government coalition, led by the Party for Justice and Development (PJD) since 2011, has broadly demonstrated a willingness and ability to reform substantial and fiscally burdensome programs, particularly the subsidy system, the politically sensitive state pension regime, and public salaries.  Our expectation is that the new government, which will be formed following the parliamentary elections held on 7 October 2016, will continue focusing on reducing the fiscal deficit and implementing domestic reforms.  We note, however, that persistent social pressures related to high unemployment, weak growth, and income disparities will need to be addressed.

Morocco’s economy grew by about 4% in 2011-2015. GDP growth has been held back by the country’s dependence on volatile agricultural output, weaker phosphate prices, and lower external demand from Europe.  Economic activity accelerated in 2015 to grow by 4.5%, compared with 2.4% in 2014, on the back of record agriculture output and low energy prices, while nonagricultural growth remained sluggish.

In 2016, we expect real GDP growth to slow to 1.5% in 2016 predominantly due to a much weaker cereal harvest in 2015-2016.  Over the medium term, we forecast economic growth to recover to average about 3% although it remains sensitive to fluctuations in the weather patterns.  The Moroccan economy remains vulnerable to potential terrorist attacks and heightened geopolitical and security risks, which has affected tourist arrivals to the country.  A possible slowing of euro area growth would also affect trade, remittances, and foreign direct investment (FDI), while low oil prices will reduce the amounts of grants and FDI from the countries in the Gulf Cooperation Council.  Stronger medium-term growth will depend on Morocco strengthening its competitiveness, fostering its economic diversification, and improving elements such as labor market flexibility and participation, as well as the judicial system.

The development of the automotive sector has become a key component of Morocco’s industrialization strategy in recent years, which should improve economic diversification, growth, and exports over the medium term.  Morocco has successfully attracted French car manufacturers – such as Renault in 2007 and PSA Peugeot in June 2015 – to develop its emerging automotive industry.  In addition to the automotive sector, aeronautics, electronics and renewable energy are set to continue growing rapidly in line with the country’s industrial policy, which enjoys broad political support.  In September 2016, the U.S.-based aerospace company Boeing reportedly announced plans to establish a new industrial hub in the country that officials hope will bring 120 Boeing suppliers to Morocco, create thousands of jobs, and raise about $1 billion in exports.  In our view, Morocco will continue to attract FDI, its business environment should stay broadly supportive, and, importantly, this will help tackle the still high unemployment rate of around 9.5%.

Youth unemployment remains high at around 20%, despite annual average economic growth of 4% over the past five years.  One of the reasons is the insufficient matching between the educational profile and actual labor market requirements, which leads to a large share of unemployed graduates.  All of these factors, alongside the oversized workforce in agriculture, explain why Morocco’s GDP per capita, estimated at $3,000 in 2016, remains one of the lowest among our ‘BBB-‘ rated sovereigns.

We project that the fiscal deficit will reach 3.5% of GDP in 2016, down from 4.3% of GDP in 2015, as a result of subsidy and wage bill controls and low oil prices.  We expect fiscal consolidation to continue apace, and the government to meet its fiscal target of a deficit of 3% of GDP by 2017.  Subsidies on fuel and food ballooned to over 6% of GDP following the start of the Arab Spring in 2011.  This led to wider fiscal deficits, and annual average changes in general government debt of more than 6% of GDP in 2011-2013.  However, the government has since managed to cut its subsidies bill substantially.  It has also taken measures to slow growth in other areas of current spending, such as public salaries.  The state pension system reform, approved by parliament in July 2016, comprises an increase in the retirement age to 63 from 60 by 2022 and higher contributions from workers and the state.  The pension reform will ease long-term pressure on public finances.

The projected fiscal consolidation will help the debt ratios stabilize over the medium term, according to our forecast.  We expect general government debt to average 50% of GDP in 2016-2019, compared with 38% in 2011 (general government debt excludes from gross debt the government’s liquid assets and the holdings of central government debt by other branches of state, such as public pension funds).  The general government debt stock has risen quickly in recent years to fund wide deficits.  External financing has increased, and the government successfully tapped the international dollar and euro markets in 2013 and 2014.

Morocco’s current account deficit shot up to 9.5% of GDP in 2012, amid high prices for imported food and fuel products and weak demand for Moroccan exports from major markets in Europe, as well as weaker phosphate prices.  We expect the deficit to continue narrowing to average about 2% of GDP in 2016-2019, compared with 6.6% in 2011-2015.  This will reflect our projections for rising exports from newly developed industries (such as the automotive and aeronautic industries), and lower energy and food imports coupled with strong remittances, which will more than offset the impact of shrinking tourism related to increasing geopolitical risks.

For the next three years, we forecast a slight recovery of tourism receipts and higher export volumes of cars from the Renault factory in Tangier.  Cars have become the country’s leading export product with about 5% of GDP in 2015, exceeding the share of phosphates in exports (4.5% of GDP).  We also anticipate that increased phosphate production will support exports and, in turn, current account consolidation.  Our revised forecast for current account deficits in 2016-2019 factors in the potential impact of the U.K. Brexit vote on Morocco’s key European partners through slightly weaker trade, tourism, remittances, and FDI flows.  We now project a wider external position in the next three years compared with our previous expectations, and we forecast narrow net external debt will drop slowly as a proportion of current account receipts (CARs) to average 31% in 2016-2019 from an estimated 39% in 2015.  We also forecast the country’s gross external financing requirements will be covered by its CARs over this period.

In recent years, Morocco successfully managed to reduce its fiscal and external imbalances and implement key domestic reforms with the support of two successive 24-month International Monetary Fund (IMF) Precautionary and Liquidity Line (PLL) arrangements.  We believe that the two previous PLL arrangements have provided useful insurance to Morocco in a context of uncertainty surrounding global oil prices, heightened sociopolitical and security risks, and weak growth of its main European partners.  They have also anchored the country’s reforms, and sent positive signals to market participants.  The reduction in the level of access from about $6.2 billion at the time of the first PLL arrangement in 2012, to about $5.0 billion with the second PLL arrangement in 2014, and $3.5 billion in the third PLL renewed in July 2016, is testimony to the improvement in Morocco’s economic fundamentals and the strengthening of its foreign exchange reserves.  We project Morocco’s reserve coverage will be higher than six and a half months of current account payments.

The Moroccan dirham is currently pegged to a currency basket comprising 60% euros and 40% dollars.  The current foreign exchange regime limits monetary policy flexibility, in our view.  However, we understand that the Moroccan Central Bank, Bank Al Maghrib (BAM), is considering moving gradually from the current peg to a more flexible exchange rate regime over the next six to 12 months.  The monetary authorities are encouraged by the more supportive macroeconomic environment now in place – including the comfortable level of foreign exchange reserves, the improved external situation, the dirham’s value relative to other currencies – and helped by the insurance provided by the IMF’s PLL arrangement.  While moving toward a more flexible exchange rate regime, we believe that the Moroccan authorities will maintain in the near term, or only gradually ease, restrictions on capital accounts to avoid any potential large-scale capital outflows.  We expect BAM to accumulate a sufficiently large foreign exchange cushion over the next few years to maintain market confidence during this transition.

BAM’s successive and substantial cuts to its reserve requirement ratio, to 2% in March 2014 from 15% in January 2008, have helped ease liquidity conditions in the domestic market and ensured adequate financing of the economy.  The most recent interest rate cut on 22 March 2016, by 25 basis points to 2.25%, keeps monetary policy accommodative amid slower nonagricultural growth.  We expect credit to the economy to continue to grow at a moderate pace over the next few years, but at a lower rate than our projected nominal GDP growth.  Inflation should remain low–we forecast it will average 2% in 2016-2019, compared with 1.6% in 2015.

We classify the banking sector of Morocco in group ‘7’ under our Banking Industry Country Risk Assessment (BICRA).  While we consider regulatory standards in Morocco to be generally conservative, Moroccan banks are still exposed to cyclical sectors (steelworks, tourism, commercial real estate, and construction).  Thus, we consider that economic risks for the Moroccan banking sector remain high in a global comparison.  We also assess the system’s risk appetite as aggressive, given the rapid expansion of Moroccan banks, including in higher risk African countries (about 20% of total lending was outside Morocco for the three main Moroccan banks in 2015).


The stable outlook reflects our expectation that the consolidation of Morocco’s fiscal and external deficits will continue over the next few years, while economic growth improves under the influence of continued implementation of reforms and low energy prices.

We could lower the ratings if growth disappoints, leading to worsening of fiscal and debt outcomes, if the government deviates substantially from its structural reform agenda and fiscal consolidation path, or if the current account does not narrow as we anticipate.

We could raise the ratings if an increase in FDI supports stronger economic growth, reduces the unemployment rate, and significantly improves per capita GDP beyond our current expectations, or if net general government debt declines more rapidly.  (S&P 07.10)

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11.3  TURKEY:  Where Has Turkey’s Foreign Direct Investment Gone?

Mehmet Cetingulec posted on 13 October in Al-Monitor that in the first half of this year, foreign direct investments in Turkey plummeted 54% compared to the same period last year.

Last year, Turkey attracted its largest amount of foreign direct investment (FDI), $16.8 billion, in the past seven years.  In 2016, however, the tables have turned, with Turkey now on track to experience its lowest FDI in seven years.

According to Economy Ministry data, FDI in Turkey for H1/16 plunged 54% compared to the same period last year, dropping to $4.8 billion from $10.5 billion.  Of the $4.8 billion, $2 billion was in the form of real estate purchases by foreigners, a significant increase for that sector for the half year.

The lowest annual FDI in the past seven years, $9 billion, occurred in 2010.  This year, with first-half FDI at $4.8 billion despite the significant boost from real estate purchases, the fear is that FDI might not reach its 2010 level.

The decline may yet worsen, because the effects of the 15 July coup attempt are not reflected in the half-year figures.  In September, Moody’s followed Standard & Poor’s and downgraded Turkey’s credit rating to “junk” — below speculative/non-investment grade — sending a warning of major risk to foreign investors.  In an apparent attempt to soothe public concerns over the downgrade, Prime Minister Binali Yildirim responded, “Our credit rating is not decided by [a few] rating agencies, but shopkeepers.”

Of course, government officials are aware of the risks although not admitting to them publicly.  The government hastily introduced new economic packages, such as increasing incentives to attract domestic investment and forgiving some taxpayer debt, and encouraged consumers to buy on credit to keep the economy going.  Ankara is now worried, however, that Fitch Ratings might also lower Turkey’s creditworthiness. Economy Minister Nihat Zeybekci said the Moody’s downgrade could put pressure on Fitch, which has been maintaining Turkey at the “investible” level.

Faik Oztrak, former undersecretary of the treasury and foreign trade and current member of parliament for the main opposition Republican People’s Party (CHP), thinks the government’s declaration of a state of emergency after the July coup attempt has scared off foreign investors.  “When they declared the state of emergency, we were told that we could revert to regular legal order before the three months of emergency expired.  Forget about ending it early, [the government] extended it for three more months.  Some are now saying that even one year might not be enough,” he told Al-Monitor.

“Foreign investors — observing negative developments in the country and the extended state of emergency — get the impression that Turkey is rapidly moving toward an authoritarian regime,” Oztrak stated.  “Who would want to invest in such an atmosphere? In an atmosphere where tension and uncertainty reign and the state of law is eroding, not only foreign investors but even our local investors have no appetite for investments.”

Oztrak also drew attention to a particularly important figure, noting, “In 2011 our private sector invested $140 billion.  Now, looking at the first half of 2016, we see that amount down to $114 billion.  With Moody’s decision to lower our rating, Turkey has lost ‘country that can be invested in’ ratings by two out of the three major rating agencies.  This will discourage some foreign funds, especially retirement funds, from investing in Turkey.”

Umut Oran, former CHP deputy chair, has worked for 30 years as a business manager and an employer.  He responded at length when Al-Monitor asked him what investors look for before committing:  “There are two forms of foreign investments.  One — hot money — is attracted by high interest and unearned income [rent].  They don’t contribute with investments and employment to your economy.  The other form is foreign direct investments. These provide employment.  But people who manage that type of investment are fidgety.  They run away quickly and won’t come back as quickly.  For them, the most important factor influencing their decision is the legal environment.  They seek a just, independent, neutral and quick legal system.  They look for democracy, human rights, free media and equality of opportunity.  If there is no separation of powers, if the parliamentary system doesn’t work well, that country cannot be counted on.  If there is no security of life and property, if the country becomes a hotbed of terror, if there is an authoritarian regime and state of emergency, if there are no secularists, if there is no merit system in the public sector, then forget about new foreign capital coming in. You can’t even keep the ones already here,” Oran said.

Oran said bad government policies have created problems with all of Turkey’s neighbors, notably to the extent of the country becoming involved in direct combat in Syria and Iraq.  Turkey’s distancing itself from democracy has basically wiped out the atmosphere conducive for investment.

So what comes next?

Al-Monitor asked Yaman Toruner, a former governor of the central bank and former minister of state considered to be a leading expert on money markets. He is concerned about the current situation, but remains hopeful about the future.  “The institutional structure in Turkey has suffered.  There is no confidence in the judicial system.  The media is under pressure.  That is why foreign investments regressed.  Because of the coup and lowering of our credit rating, we will continue to lose investments for a while, but they will return,” Toruner said.

“The US and Europe have a lot of money in the market with no place to go.  They will have to come to us,” he assessed.  “At the moment, India is the country most likely to get that money.  Then there will be some European Union countries in line, and finally Turkey.  As Brazil and Argentina are not doing well economically, hot money won’t go there.  It won’t go to Russia, either.  Therefore, we stand a good chance.”

Oran, however, is not so optimistic, stating, “Deterioration in foreign investments will only worsen because of the coup attempt and the lowering of our rating.”  He also noted that if the Turkish lira loses value against foreign currencies, Turkish companies doing business with foreign money will be in trouble.  “[Companies] may have to cut back and even begin laying off personnel,” he further stated. “Foreign currency is used as the basis for decisions in both optimistic and pessimistic scenarios. We may have to watch the movements in foreign currency markets more closely from now on.”  (Al-Monitor 13.10)

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11.4  TURKEY:  The Islamization of Turkey – Erdogan’s Education Reforms

Svante E. Cornell wrote on 2 October in the Turkey Analyst that the growing efforts at Islamization of Turkish society have largely gone unnoticed.  For many years, Islamization was the dog that did not bark: in spite of dire predictions by secularists, the AKP did not introduce conspicuous efforts to Islamize Turkey.  But since 2011, this has changed.

The main exhibit is the education sector, which President Recep Tayyip Erdogan has remodeled to instill considerably more Islamic content, in line with his stated purpose to raise “pious generations”.  Ultimately, the Islamic overhaul of the education system is bound to have implications for Turkey’s civilizational identity, and on the choices it will make on where it belongs politically.

Background:  In February 2012, then Prime Minister Erdogan raised eyebrows when he said his government was aiming at “raising pious generations”.  Beginning that month, his government embarked on a wholesale reform designed to Islamize Turkey’s education system.

The timing of Erdogan’s reforms was not coincidental.  They came fifteen years after the February 1997 military intervention, which had decreed comprehensive changes to Turkey’s education system.  Prior to 1997, compulsory schooling in Turkey was only five years; after primary school, parents were free to enroll their children in traditional secondary schools, or vocational schools, including the imam-hatip schools that had originally been designed to provide training for imams and preachers in Turkey’s mosques.  In addition to the regular curriculum, these schools provide 13 hours per week of Islamic instruction to students.  These schools had grown exponentially since 1973, when Necmettin Erbakan’s Islamist National Salvation Party (MSP) used its position in a government coalition to put them on par with secular schools.  By 1997, they enrolled one in every ten middle and high school students.  Moreover, close to half of the enrollees were girls, who could neither become imams nor hatips.  The imam-hatip schools were a deliberate effort to increase the Islamic consciousness of the young generation, having become a parallel system of education that provided a voting base and manpower for Turkey’s Islamist movement.

When the Turkish military intervened with what has been called a post-modern coup on 28 February 1997, one of the key reforms was to increase the length of compulsory schooling to eight years – thus preventing children from being enrolled in religious schools until the age of 14.  The university entrance examination system was also reformed to make it difficult for imam-hatip graduates to gain acceptance to non-theology undergraduate degree programs.  The reforms worked: imam-hatip enrollment declined from 11% to 2% of relevant age students, and the rate of graduates entering higher education dropped from 75 to 25%.

In February 2012, the AKP launched a reform program termed 4+4+4.  On the surface, the law extended compulsory schooling by four years, making school compulsory for a full 12 years.  But in fact, the reforms did exactly the opposite.  Vocational schools are once again permitted from fifth grade – including imam-hatip schools.  The law also allows parents to home-school children after fourth grade, which is expected to lead to a reduction of formal schooling, especially for girls in rural areas.

As columnist Orhan Kemal Cengiz has observed, the reforms turned “religious schools from a selective option to a central institution in the education system.”  This is the case because the reforms introduced entrance examinations for all high schools except the imam-hatip schools.  Thus, all students who do not qualify for other schools would have no choice but to enroll in religious schools.

In August 2013, over 1,112,000 students took the placement test for 363,000 slots in regular, academic high schools.  Those that did not make the cut had to choose between secular vocational schools, imam-hatip schools and a variety called “multi-program high schools”.  But the latter are only available in remote areas, and do not even exist in the entire province of Istanbul.  In other words, parents and students were forced to choose between vocational schools and religious schools.  As a result, 40,000 students were automatically enrolled in imam-hatip schools against their will, including numerous Alevi and several Armenian students, neither of whom are Sunni Muslims.

Implications:  When the AKP was first elected in 2002, 65,000 students studied in imam-hatip schools.  That number grew to 658,000 in 2013.  In May 2015, Bilal Erdogan, the President’s son, who is (informally) in charge of the Turgev foundation that is spearheading the expansion of imam-hatip schools, announced that the number of students had reached one million.

Imam-hatip schools are only one side of the story.  The AKP’s reforms have also greatly expanded the religious content of regular academic high schools.  In so doing, Turkey is in direct breach of a 2007 ruling of the European Court of Human Rights, which held that Turkey’s compulsory classes in religious education violated the religious rights of minorities, since the classes featured only education in the tenets of Sunni Islam.  The government renamed the class to “Religious Culture and Moral Values”, to make it appear broader in scope, but in practice nothing changed.  Students are required to memorize a long list of Quranic verses and prayers, but no texts from any other religion.  Moreover, Christian and Jewish students continue to be exempt from the class – implying that the government itself views it as an education in Sunni Islam for Muslims.

The reforms, far from removing the compulsory classes, extended them from one to two hours per week.  Also, the reforms enabled the rollout of elective courses in “the life of Prophet Muhammad”, and “the Quran”.  That way, students could receive up to six hours of religious education per week.  Meanwhile, the number of total hours of school per week was shortened; and thus, several other classes were either merged or abolished, such as that on “human rights, citizenship and democracy.”

In theory, these classes are elective; in practice, they may not be. School administrators decide what elective classes are to be offered.  Amendments to the law in 2014 strengthened the government’s control over the appointment of school principals, who have the decisive influence on what courses schools offer.  At least ten students are required to open an elective class and thus, students may be forced to choose among the religious classes even if they do not want to.  In a well-publicized case, the daughter of a protestant pastor in Diyarbakir was exempted from the compulsory class on religion and culture.  She was forced, instead, to choose between elective classes on the Qur’an and the life of the Prophet.

Community pressure invariably provides considerable incentives to follow the conservative majority’s behavior.  As Newsweek recently reported, when a student in a largely secular area of Istanbul was exempted from a supposedly elective class on the life of the Prophet to which she had automatically been assigned, she was bullied for being an atheist.  If this can happen in secular districts of Istanbul, the very thought of asking for an exemption would not occur to parents in towns and rural areas across the country.  It is not a coincidence that the class on the life of the prophet was the most popular elective course in the first year it was being offered.

In March 2014, new legislation was adopted that provided the government with a mandate to overhaul the entire structure of the ministry of education, including terminating thousands of high-ranking officials, who could then be replaced by political appointees.  Furthermore, reforms in 2010 made it possible to transform regular high schools into imam-hatip schools; in 2012, this was made possible for middle schools as well.  The government claims that such processes only take place as a result of popular demand, but the record proves otherwise.  In fact, government plans to turn secular schools into imam-hatip schools have led to street protests in a number of places.

On top of the changes to the educational system, the 2012 education reform made considerable changes to the Qur’an courses offered by the state directorate of religious affairs, the Diyanet.  The Qur’an courses, particularly summer courses for children, operated by the directorate, used to be co-managed with the Ministry of Education; the directorate now manages them alone.  More importantly, the 12 year minimum age to attend Qur’an courses was abolished.  Theoretically, kindergartners can now be sent to Qur’an courses.  In 2013, indeed, a special project was launched for the provision of “Qur’an courses for preschoolers.”

The reform also relaxed regulations on the physical nature of appropriate buildings and requirements for eligible teachers.  This is a boon for religious brotherhoods that can now essentially run their own Qur’an schools with their own teachers.  Finally, Quran schools are now allowed to be boarding schools and to have dormitories – an important change, since it enables the full immersion of young children in a religious lifestyle.

Conclusions:  Since 2012, the AKP has embarked on a systematic, multi-pronged effort to Islamize Turkey’s education system.  These changes are likely to be lasting, as the AKP is retaining its grip on power even though it has lost its majority.  In any coalition government in which it is the senior partner, the AKP is certain to jealously protect the education reform it has embarked on.  On top of that, President Erdogan’s parallel administration – as well as Turgev, the private foundation run by his extended family that is spearheading the expansion of imam-hatip schools – will continue to have a strong informal but direct influence on the education bureaucracy.

The consequences of these reforms will be visible only in time.  It is not unlikely, however, that they are going to encourage a Sunni Islamic radicalization among sections of the population.  Social harmony between Sunnis and non-Sunnis could be endangered as a result.  Ultimately, the Islamic overhaul of the education system is bound to have implications for Turkey’s civilizational identity, and on the choices it will make on where it belongs politically.

Svante E. Cornell is Director of the Central Asia-Caucasus Institute & Silk Road Studies Program Joint Center, and Publisher of the Turkey Analyst. This article draws on the author’s contribution to a Bipartisan Policy Center study on Turkey’s domestic evolution, to be released in September 2015, co-authored with Amb. Eric Edelman, Halil Karaveli, Aaron Lobel and Blaise Misztal; and on the author’s article “The Naqshbandi-Khalidi Order and Political Islam in Turkey”, co-authored with M.K. Kaya, published in the Hudson Institute’s Current Trends in Islamist Ideology in September 2015.  (The Turkey Analyst 02.09)

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11.5  TURKEY:  Even SpongeBob Can’t Escape Turkey’s Post-Coup Crackdown

Mahmut Bozarslan posted on 4 October in Al-Monitor that Turkey has shut down the country’s first and only Kurdish-language channel for kids, dealing a blow to efforts to keep the children connected to their culture.

The Smurfs, Maya the Bee and SpongeBob SquarePants finally started speaking Kurdish in Turkey last year, courtesy of Zarok TV, the country’s first and only Kurdish-language channel for children.  But their voices were silenced last week as the channel fell victim to the Turkish government’s continued purging since the 15 July failed coup.

The station’s debut in March 2015 came as the latest in a series of hard-won cultural freedoms for Turkey’s Kurds who, until the early 1990s, were banned even from speaking their language.  The channel was meant to be more than just a pastime for children, doubling as a vessel to teach them their mother tongue and help them maintain a bond with it.

Only 19 months later, Zarok TV (Kid TV) was back in the headlines, this time as the first children’s channel to be shut down for backing “separatist and subversive” activities in Turkey.  The 28 September closure order, which covered 23 radio and television stations, took effect abruptly late in the evening, leaving many people bewildered in front of empty screens.  It was part of the massive crackdown Ankara has waged, using extraordinary powers made available by a state of emergency, against suspected coup supporters and others.  Though the coup bid was blamed on Fethullah Gulen’s community, the clampdown has extended to Kurds and other “dissident” groups.

Many social media users went into lampoon mode, asking, “Who is the separatist: SpongeBob or Papa Smurf?”

Dilek Demiral, Zarok TV’s chief broadcast coordinator, has difficulty understanding how the channel might have irked the government.  Kurdish-language TV stations are no stranger to bans in Turkey, but hardly anyone expected a children’s cartoon channel to join the club.  A perplexed Demiral told Al-Monitor the channel had never received even a warning penalty from the Higher Board of Radio and Television (RTUK), the government’s media watchdog, which many consider to be heavy-handed.

Demiral said the decree the government used to close the stations “speaks of separatist and subversive broadcasts and channels” affiliated with the so-called Fethullah Gulen Terror Organization, a term Ankara uses to refer to Gulen followers.  “We are struggling to understand what sort of separatist and subversive activity we could have possibly engaged in [by] broadcasting cartoon movies by world-famous producers,” she added.

The first Kurdish-language channel to reach Kurds in Turkey was Med TV, which began broadcasting from Britain in 1995 as bloody conflict simmered in Turkey’s southeast between the security forces and militants of the Kurdistan Workers Party (PKK).  The channel, which was supportive of the PKK, drew large audiences hungry for Kurdish-language programs, and satellite dishes soon became a fixture on rooftops in the region.  In the late 1990s, Kurdish-language broadcasts began from inside Turkey, sometimes legally and sometimes not.  Their numbers grew in the next decade as Ankara came under European Union pressure to expand Kurdish rights. By 2009, even public broadcaster TRT had a Kurdish-language channel.

It was against this background that Zarok TV was born for the youngest of Kurdish audiences.  Before its inauguration, the Diyarbakir-based station surveyed thousands of children to fine-tune its programming and had several months of test runs.  Officially licensed by RTUK, it was formally launched on 21 March 2015, the day on which the Kurds celebrate Nowruz, their traditional New Year.  The channel became an immediate hit, broadcasting popular animations dubbed in the Kurdish dialects of Kurmanji, Zazaki and Sorani, as well as several homemade programs.

Along with other Kurdish channels launched around the same time, Zarok TV was seen as a welcome byproduct of peace efforts underway between Ankara and the Kurds.  In a community where many children grow up speaking only Turkish, especially in urban areas, thousands of Kurdish families came to rely on Zarok TV to teach their children their native language.

Demiral recalled how prominent this sense of linguistic mission was in creating the channel.  “When we were starting out, we made a promise to do whatever we can to make sure the new generations don’t go through the same language problems we experienced as children, so they can have fun and do whatever their peers do, in their own language,” she said.

“We tried to keep our promise and did bring our broadcasting quality to a certain level. Very emotional messages are now coming from Kurds across the world,” she said.  “How can a channel be closed without any justification, without a single warning penalty in its past?  We want to believe this decision was made by mistake, and we expect it to be rectified in the shortest possible time.”

The state of Turkey’s media scene, however, offers little reason for optimism.  In a joint condemnation of the government’s latest onslaught, a group of press organizations said the number of jobless journalists in Turkey jumped to more than 10,000 — up from 7,000 — as dozens of media outlets have been closed since the coup attempt.  Almost one-third of journalists are now out of work in Turkey.

The case of Zarok TV, an entity with no political aspect, has led many to believe that the government can ban anything Kurdish simply for being Kurdish.  In only 19 months, a cartoon channel — perhaps the cutest reflection of Kurdish hopes — has turned into a gloomy symbol of their eclipse.

Mahmut Bozarslan is based in Diyarbakir, the central city of Turkey’s mainly Kurdish southeast.  A journalist since 1996, he has worked for the mass-circulation daily Sabah, the NTV news channel, Al Jazeera Turk and Agence France-Presse (AFP), covering the many aspects of the Kurdish question, as well as the local economy and women’s and refugee issues.  He has frequently reported also from Iraqi Kurdistan.  (Al-Monitor 04.10)

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11.6  GREECE:  Moody’s Affirms Greece’s Government Bond Rating at Caa3

Moody’s Investors Service on 14 October affirmed Greece’s government bond rating at Caa3.  The outlook on the ratings is stable.  The short-term rating was affirmed at Not Prime (NP).  Moody’s government bond rating applies to debt issued on private sector terms only.  The key driver behind the affirmation is:

That, despite the recent successful completion of the first review, Greece’s continued timely access to official sector funding over the remainder of the program remains uncertain, given the unpredictable nature of Greek politics, the measures still to be completed within the program, and political dynamics in the euro area.  As a consequence, risks to private sector bond holders remain elevated.

The stable outlook reflects Moody’s view that the risks to creditors are broadly balanced at the Caa3 rating level.  The Caa3 rating continues to incorporate a high level of implementation risk given Greece’s weak institutions, social and political fragmentation and a historically weak reform track record.

The local and foreign-currency bond ceilings remain at Caa2.  The local and foreign-currency bank deposit ceilings remain at Caa3.  The short-term foreign-currency bond and bank deposit ceilings remain at Not Prime (NP).

Ratings Rationale

Moody’s has reassessed Greece’s rating in light of the recent completion of the first review of the third program.  The rating agency has concluded that although the Eurogroup approved the release of the remaining €2.8 billion of the first review of the bailout package on 10 October based on its favorable view of the implementation of 15 outstanding measures, risks to the timely access to official sector funding over the remainder of the program remain elevated given the high level of political and social discontent in Greece, and the country’s weak institutions.

Although the government’s recent track record of reform implementation is positive, the uncertainty associated with a conclusion of the remaining elements of the program, including the second review which is expected to disburse around €6.1 billion, is still high.  This is especially so in the context of the number of unpopular reforms required for adoption during the second review concerning product and labor market reforms and further steps towards privatization.  Domestic political dynamics remain unpredictable, with the government having only a very slim majority to ensure timely passage of a range of unpopular reforms.  While Greece’s relations with its euro area lenders have been reasonably harmonious in recent months, the political landscape across the euro area remains fluid and the tone of future negotiations unpredictable.

Accordingly, Moody’s assessment is that credit risk to bondholders has not diminished materially.  The risk of default over the life of the program remains significant, given large upcoming maturities in July 2017, with €6.6 billion in amortizations, of which €2.3 billion is due to private sector bond holders and €3.9 billion to the ECB.  Although the intention is to complete the second review by year-end, we expect that given the past delays in completing program reviews, slippages will continue to endanger the repayments due in mid-2017 and beyond.

Lastly, although there is growing consensus among European creditors and the IMF on the need for debt relief, the form that any debt relief will take, and how far-reaching it will ultimately be, remains unclear.  The Eurogroup has agreed to phase in debt relief measures progressively and as necessary to meet the agreed 15% of GDP gross financing needs benchmark, subject to the program’s pre-defined conditionality.  As previously stated, Moody’s shares the IMF’s view that it is unrealistic to expect Greece to meet primary surplus targets of 3.5% of GDP beyond 2018 and that substantial debt relief will be needed to make Greece’s debt burden sustainable.  Political dynamics in Europe, including the electoral calendar of key European creditors, make it unlikely that a quick decision on debt relief will be made.

What Could Move the Rating Up/Down

Moody’s would consider downgrading Greece’s government bond rating should the conditions needed to provide ongoing assurance of the implementation of the third bailout package fail to materialize.  This would most likely happen should the economic recovery be materially slower than expected, should the coalition government be unable to reach agreement measures to meet creditor demands, or should wider political or social tensions emerge that undermine popular or legislative support for the third program.

Moody’s would consider upgrading Greece’s government bond rating in the event of reduced implementation risk to the program of economic reforms under the third program, and sustained economic growth and primary surpluses, which would support a decline in debt levels.  (Moody’s Investors Service 14.10)

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