Fortnightly, 21 February 2018

Fortnightly, 21 February 2018

February 20, 2018


21 February 2018
6 Adar 5778
5 Jumada Al-Akhira 1439




1.1  Israel to Tax Crypto Mining Operations as Factories
1.2  Arrow 3 System Successfully Tested


2.1  Aperio Announces $4.5 Million Investment for Next Gen Cybersecurity System
2.2  Sapiens Acquires North American P&C Solution Provider Adaptik
2.3  China’s Ogawa Sets Up Israel Investment Fund
2.4  Intel Planning to Invest $4 – 5 Billion in Israel
2.5  Zion Oil & Gas Encounters Oil and Drills Deeper in Response
2.6  CommonSense Robotics Raises $20 Million for Robotics Tech for Online Grocery Fulfilment
2.7  Israel’s Delek & Noble Energy Sign Gas Deal to Supply Egypt
2.8  Morphisec Announces $12M Series B Funding Round


3.1  Bahwan CyberTek & Sultan Qaboos University Build a Center of Excellence in Oman
3.2  Saudi Women Can Now Start Own Business Without Male Permission
3.3  Saudi Companies to Face New Penalties Over Holiday Leave
3.4  Libya Buys More Than 1,000 Bulls from Ireland


4.1  ENGIE Group’s Site in Rajasthan is Now Cleaned by Ecoppia Water-free Robotic Solution
4.2  World’s First Autonomous Pods Unveiled in Dubai
4.3  Saudi Arabia Awards ACWA Power its First 300 MW Solar PV Project


5.1  Lebanon’s Balance of Payments Finishes 2017 with $155.7 Million Deficit
5.2  Total Number of Registered New Lebanese Cars Rises in January 2018
5.3  Lebanese Airport Passengers Reaches a Record 10-Year High
5.4  Foreign Aid to Jordan During 2017 Stood at $3.65 Billion
5.5  UAE Offers $500 Million to Support Reconstruction of Iraq

♦♦Arabian Gulf

5.6  UAE Remains Largest U.S. Export Market in MENA Region for 9th Straight Year
5.7  Chinese Economic Influence in the UAE is Growing
5.8  Dubai On Course for 2020 Target of 20 Million Visitors

♦♦North Africa

5.9  Egypt’s Inflation Rate Continued to Fall in January
5.10  Egypt’s International Trade Volume Reached $20.621 Billion in 3 Months
5.11  Open Budget Index (OBI) Ranks Morocco as Most Transparent Country in North Africa


6.1  Turkey to Reconsider FTA with Jordan
6.2  Proposed US Steel Imports Tax Could Affect Turkey
6.3  Cyprus’ Economy Expands 4% in Fourth Quarter
6.4  Cyprus’ Harmonized Inflation Rate Hits 1.5% in January
6.5  Greece Failed to Secure Release of €5.7 Billion Tranche from Eurogroup
6.6  Greek Current Account Deficit Widens In December, Tourism Revenues Up



7.1  Israel & World Jewry Celebrate Purim Holiday


7.2  Jordan Recognizes All Officially Accredited Foreign Universities
7.3  Large Influx of Syrians to Jordan Makes Other Refugees Less Visible


8.1  Merck & Partners Start ExploreBio – a €20 Million Pre-Seed Investment Initiative in Israel
8.2  GemmaCert Raises $2.25 Million
8.3  Israeli Researchers Kill Cancerous Tumor With Synthetic Cells
8.4  Perflow Medical Closes $12 Million in Financing to Treat Complex Neurovascular Disorders
8.5  Smart Medical Systems Secures $8 Million in Series B Financing
8.6  Motus GI Announces Closing of Initial Public Offering
8.7  DarioHealth Wins Key Contract Ensuring Its Platform to be Utilized in Clinical Study
8.8  Teva Announces Exclusive Launch of Two Strengths of a Generic Version of Solodyn in the US
8.9  Peritech Pharma’s Novel Hemorrhoid Treatment Commercialized in 24 Countries


9.1  VisIC & TSMC to Offer Advanced 1200V GaN-based Power Device Solutions
9.2  Cyberbit Wins Three Gold Cybersecurity Excellence Awards for Innovation
9.3  Spanish Ice Sports Federation Uses Pixellot Tech to Increase Exposure of Ice Sports in Spain
9.4  CallVU’s Conversational IVR Combines Voice Assistance Technology with Visual Experience
9.5  Allot Awarded Best Mobile Security Solution
9.6  RADWIN Launches World’s 1st Dual-Band 3.5 & 5 GHz 1.5 Gbps Beamforming Base Station


10.1  Israel’s Inflation Rate Drops by 0.5% in January
10.2  The Bank of Israel Issues Financial Stability Report for the Second Half of 2017
10.3  Israel is the 3rd Most Educated Country in the World
10.4  EBay Says Israelis are World’s Second-Biggest Online Shoppers


11.1  LEBANON: Staff Concluding Statement of the 2018 Article IV Mission
11.2  KUWAIT: Fitch Says Kuwait’s Fiscal Strengths Mask Long-Term Challenges
11.3  SAUDI ARABIA: Fitch Says Saudi Settlements Set to Bolster Sovereign Balance Sheet
11.4  EGYPT: Improved Indicators Show Egypt’s Economy on Target
11.5  EGYPT: Understanding the Impact of Egypt’s Economic Reform on Petroleum Investment
11.6  SUDAN: What Sudan Can Learn From Egypt on Exchange Rate Policy
11.7  TUNISIA: Can Tunisia’s Economy be Saved?
11.8  ALGERIA: Europe and Algeria – The Trust Deficit
11.9  TURKEY: IMF Staff Concluding Statement of the 2018 Article IV Mission
11.10  GREECE: Fitch Upgrades Greece to ‘B’ from ‘B-‘; Outlook Positive


1.1 Israel to Tax Crypto Mining Operations as Factories

As cryptocurrencies are regarded by the Israeli Tax Authority as financial assets and not a currency, Israel-based businesses that make use of digital coins in their daily operations will need to pay value-added tax (VAT) on their crypto-related activities, just as they would for any other product or service, according to a memo published by the authority on 18 February. The new regulations are effective immediately for the fiscal year 2018.

In January, the deputy governor of Israel’s central bank said the bank will also not recognize cryptocurrencies such as bitcoin not as currencies but as financial assets. The Israeli government’s tax division first addressed its position on cryptocurrency in a memo draft published on January 2017. According to the memo, investors who trade in cryptocurrency for investment purposes will not be subjected to VAT in the country. However, investors are subject to Israel’s 25% capital gains tax on their crypto trading. Businesses that generate cryptocurrency tokens, such as mining farms, will be taxed as factories in Israel, depending on the volume of their activity. Entities whose income volume from cryptocurrency qualifies them as a business will now be considered a financial institute and will now be taxed according to the same regulations that govern banks and currency exchanges in the country.

Licensed businesses that will accept payments in cryptocurrency in addition to fiat currency are already legally required to pay VAT on any transaction they make. However, since digital coins are classified as an asset, for transactions that are paid for in cryptocurrency they will also need to pay a capital gains tax on profit.

In addition to the current regulation, the Israeli tax authority will also establish a framework that will enable people to pay taxes on their crypto trading. Currently, he added, Israeli banks are blocking the option of transferring crypto-derived gains into Israeli bank accounts.

In Israel, taxes can only be paid in NIS from an Israeli bank account. However, the country’s Prohibition on Money Laundering Law requires Israeli banks to automatically report suspicious deposits, and all deposits exceeding NIS 50,000 (around $14,700), to the Israeli Ministry of Justice. Account owners must then verify the legitimacy of the deposit’s origin with relevant documents, but the banks refuse to accept crypto-derived deposits due to the industry’s anonymized nature, leaving big earners in a bind. (Calcalist 19.02)

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1.2 Arrow 3 System Successfully Tested

On 19 February, the US Missile Defense Agency and the Israel Missile Defense Organization successfully completed a flight test of the Arrow 3 weapons system that is designed to defend against ballistic missiles outside of the atmosphere. The test was conducted at a test site in central Israel and was led by Israel Aerospace Industries, in collaboration with the Israeli air force. The Missile Defense Agency, as system co-developer, supported the test.

The Arrow 3 weapons system is a major part of Israel’s multilayered defense array. This array is based on four layers; Iron Dome and David’s Sling, and the Arrow 2 and Arrow 3 systems. The success of this test is a major milestone in the operational capabilities of Israel and its ability to defend itself against current and future threats in the region. Arrow 3 interceptors were delivered to the Israeli air force in January 2017 for operational use. (DoD 19.02)

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2.1 Aperio Announces $4.5 Million Investment for Next Gen Cybersecurity System

Aperio Systems announced a strategic investment from Energias de Portugal (EDP), one of Europe’s largest utilities. EDP was joined in the round of financing by Data Point Capital, a venture fund with deep cybersecurity expertise from Siemens, expansion stage venture firm Jump Capital with strong Enterprise Infrastructure focus, and Scopus Ventures, a venture fund investing in category-defining companies. The $4.5 million in seed funding will support Aperio Systems’ global growth and the introduction of its next-generation Intrusion Prevention System (IPS for SCADA).

Following highly successful beta programs across sites in EMEA, Aperio Systems has moved to the installation phase at some of the world’s largest utilities. EDP’s investment follows a successful pilot program with Aperio Systems to protect thermal generation assets.

Haifa’s Aperio Systems secures critical infrastructure systems against internal and external cybersecurity threats by ensuring ironclad operational data integrity. Integrating into existing SCADA and industrial control solutions, its Data Forgery Protection (DFP) technology reveals the true state of ICS systems in the face of malicious manipulation. Providing a last line of defense against sophisticated cyberattacks, Aperio Systems dramatically lowers the risk of shutdowns and service outages – delivering operational continuity and maximum system resilience. (Aperio Systems 07.02)

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2.2 Sapiens Acquires North American P&C Solution Provider Adaptik

Sapiens International Corporation, has entered into a definitive agreement to acquire Adaptik. This acquisition will enable Sapiens to provide North American property and casualty (P&C) carriers with an enhanced platform, which will improve Sapiens’ competitive position and enable it to increase its market share in the North American insurance market. Bethlehem, Pennsylvania’s Adaptik offers P&C insurers policy administration and billing capabilities, for commercial, personal, specialty and workers’ compensation lines of business. Adaptik Policy is used by agents, underwriters and customers to quote, issue and administer policies. It includes built in integration with third-party systems and provides comprehensive policy lifecycle support for all P&C lines of business. Adaptik Billing enables P&C carriers to integrate with third-party systems and data repositories, enjoy best-in-class usability and automate processes throughout the billing lifecycle.

The transaction is expected to be completed in early March 2018. Upon completion, Adaptik will become wholly owned by Sapiens.

Holon’s Sapiens International Corporation is a leading global provider of software solutions for the insurance industry, with a growing presence in the financial services sector. They offer integrated core software solutions and business services, and a full digital suite for the property and casualty/general insurance; life, pension and annuities; and reinsurance markets. Sapiens also services the workers’ compensation and financial and compliance markets. (Sapiens 07.02)

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2.3 China’s Ogawa Sets Up Israel Investment Fund

Chinese health and quality of life company Ogawa has founded a $10 million fund for investing in health and quality of life products, with a focus on investments in Israel. The fund was established through Comfort Group, a Hong Kong-based subsidiary of Ogawa, in cooperation with Chinese investment group RJ Group. Ogawa is also planning on establishing an innovation center in Israel that will either hire local engineers or local subcontractors to develop health products. The center will focus on digital health, home monitoring of medical indicators, sports performance monitoring, and esthetic medical devices for the home.

The center will be the Chinese company’s first in Israel in the medical field. Chinese company Fosun Pharmaceutical Group operates an innovation center in Israel, after acquiring medical esthetics company Alma Lasers in 2013 for $240 million, but Comfort Group’s activity in Israel will be the first by a Chinese concern in Israel that is not based on a local company.

The investment fund is already in the processes of negotiating with a number of Israeli companies. Comfort Group is also in talks with other companies for the purpose of distributing or manufacturing their products in China. The entire group is also interested in investments in Israel in cyber and artificial intelligence, in addition to the health field. (Globes 14.02)

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2.4 Intel Planning to Invest $4 – 5 Billion in Israel

Globes reported that Intel is expected to announce investment amounting to $4-5 billion in expanding production is Israel. According to a government source, senior Intel Israel managers met the Minister of Finance recently and spoke about the matter. They also met with the Minister of Economy and Industry. The investment in question is probably an upgrade of the fab at Kiryat Gat to the next, 7-nanometer generation. The current $6 billion upgrade of the fab is to 10-nanometer technology.

Israel traditionally competes with Ireland in benefits offered to Intel in exchange for investment. The benefits package includes tax breaks on a special track designed for Intel, known as the strategic track. The economic ministries, led by the Ministry of Finance, have been doing background work recently in preparation for this decision, among other things using a model built by the National Economic Council for the previous round of investment by Intel, that tests the economic worthwhileness of strategic investments.

Despite Minister of Finance Kahlon’s declaration about the planned investment by Intel in Israel, there are still question marks over it. The chosen location has not been reported, nor has the number of jobs that the project will create. It is not impossible that the investment being discussed is connected to Intel’s huge investment in autonomous vehicles through the acquisition of Jerusalem-based Mobileye last year. All the same, government sources note that Intel has only just completed the upgrade of its Kiryat Gat fab. Moreover, Intel will be affected by US President Trump’s tax reform, which is meant to encourage companies like it to transfer activity to the US.

Earlier this year, Intel reported that since it started to be active in Israel, its investment in the Israeli economy has totaled $35 billion. Intel is the largest employer in the technology sector in Israel, with more than 10,000 employees in the country. According to company figures, in the past decade it has bought goods and services from Israeli suppliers worth $10 billion. Intel Israel’s exports totaled $3.6 billion in 2017. Exports since it started activity in Israel over 40 years ago total $50 billion. (Globes 18.02)

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2.5 Zion Oil & Gas Encounters Oil and Drills Deeper in Response

Zion Oil & Gas announced that during the current open hole wireline logging and subsequent reaming (cleaning the well bore) operations, Zion encountered free-flowing hydrocarbons while circulating drilling mud. The company is cautiously optimistic given the amount of gas that accumulated in the well after returning from Shabbat, after calling total depth (TD) at 5,026 meters (~16,500 feet). After making their first of three open hole logging runs, it was decided to ream to bottom to clean the hole out in anticipation of a second logging run. After circulating the well, Zion experienced a continued and significant increase in gas followed by clear evidence of oil in the circulated mud from the bottom of the well. This is exciting news and they decided to continue to drill up to another 70 meters (~230 feet).

Zion is dedicated to exploring for oil and gas onshore Israel and is 100% focused on its Megiddo-Jezreel License, a large area south and west of the Sea of Galilee that includes the Jezreel and Megiddo valleys. This license gives Zion the exclusive right to explore in an area of approximately 99,000 acres that appears to possess the key geologic ingredients of an active petroleum system with significant exploration potential. (Zion Oil & Gas 13.02)

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2.6 CommonSense Robotics Raises $20 Million for Robotics Tech for Online Grocery Fulfilment

CommonSense Robotics has raised $20 million in Series A funding. The round was led by Playground Global, with participation from previous investors Aleph VC and Eric Schmidt’s Innovation Endeavors. It brings the company’s total funding to $26 million.

Using what it describes as advanced robotics and AI, CommonSense Robotics claims to enable retailers — even relatively small ones — to offer one hour, on-demand grocery deliveries to consumers “at a profitable margin”. It does this by employing robots to power bespoke warehouses or micro-fulfilment centers that are small enough to be placed in urban areas rather than miles away on the outskirts of town. The robots are designed to store products and bring the right ones to humans who then pack a customer’s order. More robots are then used to get the packaged order out to dispatch. This robot/AI and human combo promises to significantly reduce the cost of on-demand groceries, thus broadening the range of retailers that can compete with Amazon.

Tel Aviv’s CommonSense Robotics is currently deploying the first generation of its robots in its first operational facility, and has plans to open more facilities in the U.S., U.K. and Israel in 2018. (CommonSense 15.02)

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2.7 Israel’s Delek & Noble Energy Sign Gas Deal to Supply Egypt

Israel’s Delek Drilling and Noble Energy have signed two separate agreements with Egypt’s Dolphinus Holdings for the supply of 64 Bcm of gas over a 10-year period, it was announced on 19 February. Gas supplies are to begin in 2020 or shortly after the beginning of production at the Leviathan field. The gas will be supplied from the Leviathan and Tamar offshore fields. The value of the two binding agreements is estimated at $15 billion based on an average price of $6 per million BTU.

The companies said the start-up of the supply will depend on a decision regarding the infrastructure used to carry the gas. Three options are being examined: the use of the existing and unused East Mediterranean Gas (EMG) pipeline that runs through the Sinai from a point off Israel’s southern Mediterranean coast; exporting to Jordan and from there by pipeline to Egypt or a new pipeline. The agreement stipulates that gas deliveries will continue until 64 Bcm is supplied or 2030, whichever is sooner. Dolphinus Holdings supplies gas to large Egyptian industrial and commercial customers.

He added that the latest agreement brings Leviathan to the threshold of the first stage development plan, which calls for 12 Bcm/year for the domestic market and for export to Jordan and Egypt. In 2016 the Leviathan consortium signed an agreement with Nepco, Jordan’s state-owned power company. Production at Leviathan is due to begin in the final quarter of 2019. The second stage calls for an expansion to 21 Bcm/year and is earmarked for the export market. (Platts 19.02)

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2.8 Morphisec Announces $12M Series B Funding Round

Morphisec has raised $12 million Series B round of funding. The round features new investor Orange Digital Ventures, the digital investment arm of Orange, as well as existing Morphisec investors Jerusalem Venture Partners, GE and Deutsche Telekom. Additional investors in Morphisec include La Maison, Portage Partners, OurCrowd, Kodem Growth Partners and Evolution Equity Partners.

Morphisec’s patented Moving Target Defense innovation is the foundation of its Endpoint Threat Prevention solution, which quickly and simply prevents advanced threats for customers of all sizes globally. Morphisec’s entirely new approach to endpoint protection makes it the only solution that can protect during major operating system patching gaps (like those necessary based on the Spectre and Meltdown exploits), against zero-day attacks (e.g., WannaCry), fileless malware and more, all while providing significant operational and business benefits, including continuity across patch cycles without the need for updates, zero false positives and no performance degradation. Morphisec supports endpoints and servers in physical, VDI and hybrid environments.

Beer Sheva’s Morphisec offers an entirely new level of innovation to customers in its Endpoint Threat Prevention product, delivering protection against the most advanced cyberattacks. The company’s patented Moving Target Defense technology prevents threats others can’t, including APTs, zero-days, ransomware, evasive fileless attacks and web-borne exploits. Morphisec provides a crucial, small-footprint memory-defense layer that easily deploys into a company’s existing security infrastructure to form a simple, highly effective, cost-efficient prevention stack that is truly disruptive to today’s existing cybersecurity model. (Morphisec 19.02)

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3.1 Bahwan CyberTek & Sultan Qaboos University Build a Center of Excellence in Oman

Bahwan CyberTek and the Sustainable Energy Research Center at Sultan Qaboos University signed a research cooperation and collaboration agreement in January 2018 to set up a Center of Excellence (CoE) to support the Renewable Energy initiatives in Oman by bringing together the distinctive capabilities of both SQU and BCT in the area of renewable energy. The partnership aims to leverage the inherent expertise of SQU in advanced research, policy-making, nurturing top talent along with BCT’s domain knowledge, consulting capabilities, IP solutions for real-time asset monitoring and maintenance built on its cutting-edge patent-pending Predictive Analytics platform – Cuecent RETINA.

BCT has made major strides in the renewables industry with its products and services that have been adopted by facilities with a combined capacity of over 6GW helping customers like Siemens Gamesa, Continuum Energy, Ecoren Energy, Softbank Energy, Leap Green, etc. BCT offers its renewables customers differentiated value in the predictive analytics space using its products RETINA Enhance and RETINA Empower. These solutions help renewable energy park developers and O&M operators monitor their parks in real-time, analyze deviations, identify root causes, get insights and suggestions on asset maintenance using predictive analytics, analyze balance of plant (BOP), and draw other key business insights related to their operations.

BCT, with a strong focus on connected innovation, works in close partnership with leading educational institutions globally to create Centers of Excellence to impart top-of-the line training in the latest technologies, co-create value and nurture talent. Some of BCT’s partners in this area are Anna University, India; Sri Eshwar College of Engineering, India and Nizwa College of Technology, Oman.

India’s Bahwan CyberTek (BCT) was established in 1999 and is a provider of digital transformation solutions across industry domains and has delivered solutions in twenty countries across North America, Middle East, Far East, Africa and Asia. With strong capabilities in Big Data & Analytics, Mobility, Cloud and UX/UI, BCT has over 2800 associates with technical and domain expertise in delivering solutions to oil & gas, telecom, power, government, banking, retail and SCM/logistics verticals. With a focus on joint innovation, BCT has partnered with leading global technology organizations such as Oracle, IBM and TIBCO to deliver differentiated value to customers. (Bahwan CyberTek 19.02)

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3.2 Saudi Women Can Now Start Own Business Without Male Permission

Announced on 15 February, women in Saudi Arabia may now open their own businesses without the consent of a husband or male relative, as the Kingdom pushes to expand a fast-growing private sector. The policy change, announced by the Saudi government, also marks a major step away from the strict guardianship system that has ruled the country for decades.

Under Saudi Arabia’s guardianship system, women are required to present proof of permission from a male “guardian” — normally the husband, father or brother — to do any government paperwork, travel or enroll in classes. While women still face a host of restrictions in the kingdom, Saudi Arabia’s public prosecutor’s office this month said it would begin recruiting women investigators for the first time. The kingdom has also opened 140 positions for women at airports and border crossings, a historic first that the government said drew 107,000 female applicants.

Crown Prince Mohammed bin Salman, the powerful heir to the Saudi throne, has been leading the drive to expand the role of women in the workforce in recent months. His father, King Salman, in September approved the end of a decades-long ban on driving, which goes into effect in June. The 32-year-old prince pledged a “moderate, open” Saudi Arabia in October, breaking with ultra-conservative clerics in favor of an image catering to foreign investors and Saudi youth. Prince Mohammed is widely seen as the chief architect behind Saudi Arabia’s “Vision 2030” reform program, which seeks to elevate the percentage of women in the work force from 22% to nearly one-third. (AB 18.02)

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3.3 Saudi Companies to Face New Penalties Over Holiday Leave

Employers in Saudi Arabia will be fined SR10,000 if they violate the Labor Law that pertains to the contracted holiday entitlement of their employees. The new provision has been included in the revised table of violations and penalties under Article 38 of the law. The new regulation is part of a bevy of new measures under the Labor Law in Saudi Arabia, which Minister of Labor & Social Development Ali Al Ghafees sais have been made in response to the changing nature of the labor market in the kingdom.

For example, there is also a SR10,000 fine for any employer that allows a non-Saudi employee to work in a profession other than the one specified in his work permit. Employers will be fined SR2,000 for keeping employee’s passport, iqama (residency permit) or medical insurance card without his consent. If the firm fails to meet the requirements of health and occupational safety of its staff, they can face a SR15,000 in fine. There are also fines for failure to open a file and maintain the accuracy of its contents in the Labor Office, for not having organizational regulations or not complying with them, and for failing to submit the Wage Protection file to the Labor Office on a monthly basis. Fines must be settled within one month after the issuance of penalty, the failure of which will result in the doubling of fine. (AB 06.02)

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3.4 Libya Buys More Than 1,000 Bulls from Ireland

Over 1,000 Friesian bulls were exported to Libya under a contract arranged by Supreme Livestock – an Ireland based exporter. The company has confirmed that a livestock carrier docked to carry the bulls to their destination. Supreme Livestock is looking for approximately 1,200 black and white Friesian bulls. They were looking for some breeding stock and in-calf heifers for the shipment. Last year, some 1,830 Irish cattle were exported to Libya; down from the 2,162 shipped the year previous. (Agriland 14.02)

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4.1 ENGIE Group’s Site in Rajasthan is Now Cleaned by Ecoppia Water-free Robotic Solution

Ecoppia announced the completion of deployment of hundreds of its automated systems in the 2,255 MW Bhadla Solar Park in Jodhpur, Rajasthan India, in a site developed by Engie Solar India, subsidiary of energy multinational ENGIE Group. Located in a vast desert area, Bhadla Solar Park is prone to frequent dust storms, which can reduce energy generation by as much as 40% in a matter of minutes. Ecoppia is the only solution able to maintain peak energy production and restore panels post-storm in just hours – without water or external electricity consumption: with the deployment of Ecoppia across its site, ENGIE is expected to save over 1.5 billion of liters of water, and reduce its operating expenses drastically. The subject project was won at record tariff, lowest in India at the time of bidding, hence it was indispensable to adopt an innovative and bankable technology like Ecoppia to ensure maximum plant productivity.

Continuing Ecoppia’s commitment to cooperation with large multinational energy conglomerates and its specific focus on the Indian market, the company is expected to top 1 GW of deployments in Bahdla Park alone, and over 2GW across India. Cleaning over 200 million solar panels to date, leveraging experience gained working with leading energy conglomerates like Adani Power, SunEdison and NTPC, Ecoppia cooperated closely with ENGIE throughout the design and deployment process to maximize rollout efficiency and optimize return on investment.

Herzliya’s Ecoppia is the world leader in robotic PV cleaning solutions, cost-effectively maximizing the performance of utility-scale installations world over. Cloud-based and connected, the water-free, automated technology removes dust from panels on a daily basis to ensure peak output, even in the toughest desert conditions. Remotely managed and controlled, Ecoppia’s solutions allow solar sites to peak perform with minimal costs and human intervention. Privately held organization backed by prominent and experienced international investment funds, Ecoppia works with the largest energy companies globally, cleaning millions of solar panels every month. (Ecoppia 19.02)

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4.2 World’s First Autonomous Pods Unveiled in Dubai

Dubai’s Roads and Transport Authority (RTA) launched the first tests of the world’s first autonomous pods. The autonomous pods – launched in cooperation with Next Future Transportation – are designed to travel short and medium distances in dedicated lanes. They can be coupled together in as little 15 seconds or detached – depending on the riders’ destination – in five seconds. Each pod is fitted with cameras and electromechanical technologies to carry out the coupling and detaching, which can be activated while the pod is in motion.

According to RTA, each pod has an average speed 20 kilometers per hour, and measures 2.87 meters in length, 2.24 meters in width and 2.82 meters in height, and weighs about 1,500 kilograms – enough to carry 10 riders. The autonomous pod is fitted with a battery that supports three hours of operation, and can be charged in just six hours.

The pods form part of Dubai’s larger strategy of making 25% of all journeys in Dubai autonomous by 2030. RTA has signed an agreement with the US-based Next Future Inc. to develop the units as part of the initial phase of Dubai Future Accelerators. (AB 11.02)

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4.3 Saudi Arabia Awards ACWA Power its First 300 MW Solar PV Project

Saudi Arabia’s energy ministry said on 7 February that it had awarded its first solar PV project to renewable energy developer ACWA Power. The agreement to develop the 300 megawatt (MW) solar project in Sakaka, was signed with ACWA, the ministry said, adding it was expected to involve a total private sector capital investment of about $300 million. The project was closed financially on 28 February and will begin commercial operation in 2019. Saudi Arabia has said it aims to generate 9.5 gigawatts of electricity from renewable energy annually by 2023. (AB 06.02)

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5.1 Lebanon’s Balance of Payments Finishes 2017 with $155.7 Million Deficit

Lebanon’s Balance of Payments (BoP) ended 2017 with a $155.7 million deficit, as opposed to 2016’s $1.2B surplus. Lebanon’s central bank (BDL) said in 2017, three key events impacted the BOP throughout the year. These include: the March 2017 issuance of $3 billion in Eurobonds, the November political crisis and the $1.7 billion Eurobonds swap between BDL and the MoF. As a result, the BOP recorded a $1.12B deficit in the first six months of the year, which outweighed the $959.9M surplus recorded in H2/17.

The BDL’s swap operation in H2/16 sent the BOP into its first surplus in three years, at $508.5M by February 2017. The surplus was maintained, with the BOP recording $46.3M in surplus as commercial banks’ NFA surged while BDL’s contracted, on the back of Lebanon’s successful sale of $3 billion worth of sovereign Eurobonds in March 2017. The year also included the crisis surrounding the resignation of the Lebanese prime minister, which boosted demand on the dollar and pushed depositors to transfer part of their savings out of the country. As such, by December 2017, BDL’s Net Foreign Assets (NFAs) added $1.61B, while the commercial banks’ NFAs retreated by $1.77B owing it to the banks’ selling Eurobonds to replenish their liquidity for the USD during the political uncertainty.

It is worthy to note that the largest deficits recorded in Lebanon’s BOP this year were in June and October 2017, whereby the BOP deficits stood at $758M and 887.8M, respectively. In December alone, the BOP recorded a surplus of $853.8M compared to a surplus of $909.8M in December 2016. In details, commercial banks’ NFAs rose by $748M and the Central Bank’s NFAs grew by $105.8M in 2017. (BLOM 07.02)

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5.2 Total Number of Registered New Lebanese Cars Rises in January 2018

According to the Association of Lebanese Car Importers, the total number of newly registered commercial and passenger cars grew by 2.65% year-on-year (y-o-y) to 2,636 cars by January 2018. In details, the number of registered commercial cars dropped by 0.68% y-o-y to 147, while the number of registered passenger vehicles rose by 2.85% to reach 2,489 by January 2018. In terms of car brands, Kia maintained its top rank, with the largest share of 17.52% of newly registered passenger cars, followed by Hyundai and Toyota with similar shares of 11.13% and Nissan with an 11.09% share. As for sales per importer, Natco acquired the largest stake of newly registered cars with 16.73% of the total, followed by RYMCO with 14.04%, BUMC and Century Motors with 11.57% and 10.70%, respectively. (AIA 15.02)

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5.3 Lebanese Airport Passengers Reaches a Record 10-Year High

The Rafic Hariri International Airport activity rose during 2017, as the total number of passengers increased by a yearly 6.76% to 8.24M, its highest record in more than a decade. More specifically, the number of arrivals to Lebanon shot up by 8.35% y-o-y from 3.81M by December 2016 to 4.12M in the same period of 2017. Departures recorded a yearly fall of 9.92% to reach 3.51M by December 2017, compared to 3.89M by December 2016. However, the number of transit passengers plunged further this year dropping from 13,648 passengers by December 2016 to 4,890 passengers by December 2017. (RIA 12.02)

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5.4 Foreign Aid to Jordan During 2017 Stood at $3.65 Billion

The total foreign assistance contracted in 2017 with various donors and international financial institutions reached about $2.99 billion, while the value of donations to support refugees, including humanitarian assistance, stood at $653.7 million, according to Jordanian Minister of Planning and International Cooperation Fakhoury. Fakhoury said that the total amount of foreign aid for Jordan in 2017 amounted to $3.65 billion, compared to $3.15 billion in 2016, an increase of about half a billion dollars. The minister said that the increase in total aid comes in recognition of Jordan’s pivotal role and comprehensive reforms led by His Majesty as well as to help Jordan shouldered the burden it bears due to the refugee issue.

Fakhoury stressed the importance of implementing the 2018-2022 plan for stimulating economic growth as well as the structural reforms based on the plan, being worked on with donors and international financial institutions according to the Jordan 2025, the 10 year blueprint for economic and social development. Amman recently launched the Jordan Response Plan for the Syrian crisis 2018-2020. (Petra 20.02)

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5.5 UAE Offers $500 Million to Support Reconstruction of Iraq

The UAE has offered $500 million to help in the reconstruction of Iraq. Dr. Anwar bin Mohammed Gargash, Minister of State for Foreign Affairs, announced the UAE’s offer at the ‘Kuwait International Conference for the Reconstruction of Iraq. Donors and investors gathered in Kuwait recently to discuss efforts to rebuild Iraq’s economy and infrastructure as it emerges from a devastating conflict with ISIL militants who seized almost a third of the country.

Gargash explained that the support includes $250 million via the Abu Dhabi Fund for Development for infrastructure projects, $100 million to help UAE electricity companies fund projects in Iraq, $100 million to support and promote UAE exports, as well as $50 million to support the humanitarian efforts of the Emirates Red Crescent, ERC, and its charity projects in the areas most affected by the IS (Daesh). He added that the UAE has historically leant its support to Iraq, includes a decision to cancel a previous debt worth $7 million in 2008.

Rebuilding Iraq after three years of war with the Islamic state will cost more than $88 billion, with housing a particularly urgent priority. At the same conference, the United States said it was extending a $3 billion credit line but was not providing any direct government assistance. International NGOs have so far pledged $330 million in humanitarian assistance. (AB 14.01)

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►►Arabian Gulf

5.6 UAE Remains Largest U.S. Export Market in MENA Region for 9th Straight Year

The United Arab Emirates remains the United States’ top export destination for the entire Middle East & North Africa (MENA) region for the ninth year in a row, according to the Census Bureau’s Foreign Trade Division at the U.S. Department of Commerce. In 2017:

-The U.S. and the UAE conducted $24.3 billion in total bilateral trade
-The U.S. enjoyed a $15.7 billion trade surplus with the UAE –3rd largest globally
-U.S. exports to the UAE reached a total of $20 billion
-UAE exports to the U.S. reached a total of $4.3 billion

With one of the most open and innovative economies in the world, the UAE is a dependable and significant economic partner of the United States. Total bilateral trade doubled over the past decade, from $12.1 billion in 2007 to $24.3 billion last year. The UAE trades with all 50 U.S. states, supporting jobs across the country. (UAE Embassy in Washington 07.02)

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5.7 Chinese Economic Influence in the UAE is Growing

China’s influence in the UAE is growing as the contractors from the Far Eastern country become increasingly active in local construction projects and the number of Chinese visitors continues to increase, according to consultants JLL. According to JLL, the UAE plays a crucial role in China’s proposed “new Silk Roads”, including a maritime route from China through South Asia to Africa and Europe and an overland route through Central Asia to Iran, the Middle East and Europe. The main goal is to invest in infrastructure [along these routes]. Dubai is a key city in this strategy, and gateway to stable markets, especially in Africa. There are a number of significant Chinese investments in the UAE – such as in Abu Dhabi Industrial Park and Dubai Food Park – as signs of growing Chinese economic involvement in the country.

Notably, a Chinese company, the China State Construction and Engineering Corporation, is the second most significant contractor in the UAE by value ($2.94 billion) with 16 projects under execution. Additionally, China has become the fourth most significant source market for visitors coming to Dubai, behind only India, Saudi Arabia and the UK. Chinese brands are increasingly present in the UAE and Chinese malls – such as DragonMart – are increasingly looking to expand their presence in the UAE and elsewhere in the region. The Chinese will build and finance the shopping mall, and then a lot of Chinese brands come into the market. (AB 07.02)

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5.8 Dubai On Course for 2020 Target of 20 Million Visitors

Dubai accelerated its growth rate of visitors and moved closer towards its goal of welcoming 20 million visitors annually by 2020. The number of overnight visitors in 2017 reached 15.79 million in 2017, a growth of 6.2% on the previous year, and higher than the previous year’s 5% growth rate. India retained its top spot in terms of country-by-country visitors, with 2.1 million tourists in 2017, which was a 15% increase in year-on-year numbers. Despite an overall 7% drop in numbers, Saudi Arabia provided the next highest number of visitors, with 1.53 million tourists last year. Visitors from the UK were next on the list, with 1.27 million travelers, an increase of 2%.

The number arriving from China was up 41% (764,000), while the returning Russian tourists – boosted by the strength of the ruble – saw a 121% increase in visitors (530,000) on 2016. Dubai Tourism said the introduction visa-on-arrival facilities for visitors from China and Russia also increased the respective numbers. (AB 07.02)

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►►North Africa

5.9 Egypt’s Inflation Rate Continued to Fall in January

Egypt’s annual urban consumer price inflation rate has declined to 17.1% in January, down from 21.9% in December, Egypt’s official statistics agency CAPMAS announced on 8 February. Month-on-month consumer prices dropped by 0.1% after having fallen 0.2% in December. Annual food and beverage prices rose by 16.6% in January compared to 25.2% the previous month.

Annual prices have been affected by the slowing rise in food and beverage prices, which make up the biggest single component of the basket of goods and services. The country’s inflation had shot up after Egypt floated the pound in November 2016, reaching a record high last summer following cuts to fuel subsidies. However, the inflation rate has been gradually falling since July 2017. (Ahram Online 08.02)

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5.10 Egypt’s International Trade Volume Reached $20.621 Billion in 3 Months

The volume of trade exchange between Egypt and other world countries between July to September 2017 was about $20.621b, according to the Central Bank of Egypt (CBE). According to a recent CBE report, the volume of Egypt’s imports from the rest of the world during that period came to about $14.781b, while exports amounted to about $5.836b. The volume of trade exchange between Egypt and 14 other countries, which are the most important trading partners of Egypt, was $12.128b, equivalent to about 58.8% of Egypt’s total trade with all countries of the world. The CBE pointed out in its report that the value of Egyptian exports to these countries was about $3.904b, while the value of Egyptian imports from these countries amounted to $8.224b.

According to the report, the UAE ranked first in terms of Egypt’s most important trading, as the value of trade exchange between the two during that period was about $1.465b, of which $870.5m was imports and $594.9m exports. China came second at $1.347b in trade exchange; $1.264b in imports and $82.1m in exports. Italy ranked third among Egypt’s most important trading partners during the period from July to September 2017, as the value of trade with Egypt was $1.079b, of which $534.5m was imports and $544.5m exports. In fourth place came the United States, with a trade exchange value of $1.048b, of which $637.2m was imports and $411.1m was exports. Germany ranked fifth in terms of Egypt’s most important trading partners, their value of trade exchange in that period being $1.044b, of which $754.6m was imports and $289.5m exports. Saudi Arabia ranked seventh among Egypt’s most important trading partners, with a total trade value of about $850.1m, of which $626.1m was imports and $224m exports. (CBE 19.02)

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5.11 Open Budget Index (OBI) Ranks Morocco Most Transparent Country in North Africa

Morocco ranks 58th in the 2017 Open Budget Index (OBI), a ranking within the larger Open Budget Survey published by International Budget Partnership (IBP). With 45 points out of 100, Morocco is considered the most transparent country in North Africa and the second in the MENA region after Jordan. The score also falls within the OBI average global range and matches the median score. In Africa, Morocco ranks seventh behind South Africa, Uganda, Senegal, Ghana, Namibia and Kenya. According to the OBS, fewer than 25% of participant countries provide complete budget information. The index notes that Morocco remains in the category of countries where budget transparency is still insufficient. (MWN 18.02)

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6.1 Turkey to Reconsider FTA with Jordan

On 19 February, Jordan’s King Abdullah reviewed with Turkish Foreign Minister Cavusoglu Jordanian-Turkish bilateral relations and the latest regional developments. Talks also covered economic cooperation and trade between the two countries. Cavusoglu stressed that the Turkish government would revise the Jordanian-Turkish Free Trade Agreement (FTA) to facilitate the entry of Jordanian exports to Turkey. The minister noted his country’s keenness on utilizing Aqaba Port as a regional hub for Turkish exports to various markets, including Africa.

The King and the minister also discussed developments in the Syrian crisis, stressing the importance of reaching a political solution on the basis of the Geneva understandings to ensure Syria’s territorial integrity. During the discussions at the Foreign Ministry in Amman, both ministers agreed to work on agreements related to free trade between Jordan and Turkey to address shortcomings in the current situation. Relying the findings of a study by the Amman Chamber of Commerce last year, business leaders called for revisiting the Jordan-Turkish FTA, noting that trade balance was heavily in favor of Turkey. (JT 20.02)

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6.2 Proposed US Steel Imports Tax Could Affect Turkey

The U.S. Department of Commerce is considering imposing customs taxes or quotas for steel and aluminum imports. The department’s primary recommendation is imposing a 24-percent tariff on steel imports. The second alternative is a tariff of 53% for 12 steel producing countries, including Turkey. The issue is getting increasingly serious as the U.S. considers tariffs and quotas for steel and aluminum imports. The U.S. Department of Commerce has submitted its recommendations to Pres. Trump, arguing that importing those products “weakens national security.”

Last year, the U.S. last year imported 34.4 million tons of steel, valued at roughly $29 billion. In terms of volume and value, U.S. imports increased by 15% and 30% compared to the previous year, respectively. In 2017, Turkey exported $1.1 billion worth of steel to the U.S, capturing a 5.7% share in the U.S’s total imports. This made Turkey the sixth largest seller of steel to the U.S. However, Turkey’s share in the U.S’s total imports declined by 1.6% from a year ago. According to U.S. data, Turkey accounted for the second largest share of the U.S.’s long steel imports. (Various 20.02)

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6.3 Cyprus’ Economy Expands 4% in Fourth Quarter

Cyprus’s economy expanded 4% in the fourth quarter of 2017 compared to the respective three-month period last year, Cystat announced. The fourth quarter economic output expanded a seasonally adjusted 3.9%, Cystat said in a statement on its website. Compared to July to September, the economy grew in October to December 1.1%. Economic activity increased mainly in the areas of hotels and restaurants, retail and wholesale trade, construction and manufacturing. (CBM 14.02)

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6.4 Cyprus’ Harmonized Inflation Rate Hits 1.5% in January

Cyprus’ harmonized consumer price index dropped 1.5% year-on-year in January, as a drop in the prices in most categories of goods and services offset less affordable energy products, Cystat statistical service said. Prices for food, alcoholic beverages, and tobacco fell an annual 3.6% last month. Those for non-energy products fell 2.5% and services became marginally more affordable. Energy prices rose 0.6%. (Cystat 20.02)

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6.5 Greece Failed to Secure Release of €5.7 Billion Tranche from Eurogroup

Greek Finance Minister Tsakalotos came away from the 19 February meeting of Eurozone finance ministers without their approval for the release of €5.7 billion in bailout funding. The money from the fourth tranche is not expected to fill Greek coffers until at least mid-March, as the Eurogroup is demanding that Greece complete two pending prior actions from 110 reforms it needed to implement in order to wrap up the program. The pending reforms relate to electronic foreclosures – seen as key in helping Greek lenders manage their massive stockpile of nonperforming loans – and delays in the privatization of the old Athens airport plot at Elliniko. The head of the European Stability Mechanism, Klaus Regling, said in comments after the meeting that he does not “anticipate” the €5.7 billion tranche being disbursed before mid-March, partly due to the scheduling constraints of a German parliamentary committee that has to green light the disbursement, according to Bloomberg. (Various 19.02)

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6.6 Greek Current Account Deficit Widens In December, Tourism Revenues Up

Greece’s current account deficit widened in December 2017 compared to the same month a year earlier on the back of a worsening in all components apart from the trade gap which shrank, the Bank of Greece said on 20 February. Central bank data showed the deficit at €1.241 billion from a deficit of €1.008 billion in December 2016. Tourism revenues rose slightly to €182 million from €181 million in the same month a year earlier. It said a lower trade deficit in the month was the result of a stronger rise in oil and non-oil exports compared to imports. In 2017, Greece’s current account deficit reached €1.5 billion, down by €418 million year-on-year. This mainly reflected improvements in the services balance and, to a lesser extent, the primary and the secondary income accounts which more than offset an increase in the trade deficit. (Reuters 20.02)

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7.1 Israel & World Jewry Celebrate Purim Holiday

On 28 February – 1 March, most of Israel and Jewry around the world will mark the holiday of Purim. Purim is one of the most joyous and fun holidays on the Jewish calendar. It commemorates a time when the Jewish people living in Persia were saved from extermination. The story of Purim is told in the Biblical book of Esther. The heroes of the story are Esther and her cousin Mordecai, who raised her as if she were his daughter. Esther was taken to the house of Ahasuerus, King of Persia, to become part of his harem. King Ahasuerus loved Esther more than his other women and made Esther queen, but the king did not know that Esther was a Jew, because Mordecai told her not to reveal her nationality. Haman, an arrogant, egotistical advisor to the king, hated Mordecai because Mordecai refused to bow down to Haman, so Haman plotted to destroy the Jewish people. Mordecai persuaded Esther to speak to the king on behalf of the Jewish people. Esther fasted for three days to prepare herself and then went into the king. She told him of Haman’s plot against her people. The Jewish people were saved and Haman was hanged on the gallows that had been prepared for Mordecai.

The Purim holiday is preceded by a minor fast, the Fast of Esther (28 February), which commemorates Esther’s three days of fasting in preparation for her meeting with the king. The primary commandment related to Purim is to hear the reading of the book of Esther. The book of Esther is commonly known as the megillah, which means scroll. It is customary to boo, hiss, stamp feet and rattle noisemakers whenever the name of Haman is mentioned in the service. The purpose of this custom is to “blot out the name of Haman.” Jews are also commanded to eat, drink and be merry. In addition, they are commanded to send out gifts of food or drink, and to make gifts to charity. The sending of gifts of food and drink is referred to as mishloach manot (lit. sending out portions). Purim is not subject to the Sabbath-like restrictions on work that some other holidays are; however, some sources indicate that Jews should not go about their ordinary business on Purim out of respect for the holiday. Purim is also celebrated a day later (1/2 March) in Jerusalem.

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7.2 Jordan Recognizes All Officially Accredited Foreign Universities

Jordan’s Ministry of Higher Education & Scientific Research has decided to begin recognizing all non-Jordanian universities acknowledged by official accreditation commissions in their home countries, Higher Education Minister Adel Tweisi said. The decision came into effect after its publication in the latest issue of the Official Gazette, which included several other amendments on the criteria used for the recognition of foreign universities.

In this regard, Tweisi expressed concerns over the policies of non-Jordanian universities on international students, noting that several medicine faculties abroad have separate programs for foreign students in which the quality of education is way lower than in the main programs, and we want to prevent our students from falling victims to this. Concerning the rest of the amendments, Tweisi highlighted that the regulations for the recognition of universities and the equalization of university degrees once the students return to Jordan have been divided into two sets, modifying the requirements for the submission of a foreign degree to the ministry. He noted that “although the minimum time that the student is required to stay abroad is still eight months, the new regulation allows them to divide this time into four periods of two months each, while the prior instructions required them to spend the time abroad in a single period”. (JT 17.02)

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7.3 Large Influx of Syrians to Jordan Makes Other Refugees Less Visible

Due to the large influx of Syrian refugees, Iraqis and persons of concerns (POCs) from Sudan, Yemen and Somalia and other countries become less visible in Jordan, enjoying limited access to assistance, experts warned. With over 657,628 Syrians hosted in Jordan as of 4 February, Syrians constitute the largest population of POCs registered with UNHCR in the Kingdom. However, Iraqis still amount to 65,120 POCs while 14,850 “other” POCs, most of whom are Yemeni, Sudanese, and Somali are also residing in Jordan, UNHCR latest figures showed.

Figures published by the UNHCR for the years 2015 and 2016 illustrated a disparity in access to aid, with the agency stating it reached more than 90% of its target beneficiary goal for Syrians for cash assistance but only 33% for non-Syrians. Unequal access to funds is exemplified by the cash assistance distribution scheme, in which the most vulnerable Iraqi and other refugees entitled to cash assistance receive significantly fewer vouchers from UN agencies than their Syrian peers. In addition to UNHCR cash assistance, Syrians also receive a JD10 to JD20 in vouchers from the World Food Program and a large part of the Syrian community receives JD20 per child as a cash grant from UNICEF. The opportunity given to Syrian refugees to obtain work permits under the Jordan Compact has deepened the gap with other POCs who still lack any opportunity for legal employment under the same compact. (JT 19.02)

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8.1 Merck & Partners Start ExploreBio – a €20 Million Pre-Seed Investment Initiative in Israel

Merck announced ExploreBio, a pre-seed-investment vehicle by four investment funds targeted at early-stage companies in the biotechnology landscape in Israel. For this purpose the strategic corporate venture capital arm of Merck has partnered with Arkin Holdings, Pontifax and WuXi AppTec to create the €20 million pre-seed investment vehicle. ExploreBio is an initiative comprising pre-seed investments and management services for proof-of-concept-experiments in biotechnology. Additionally, companies benefiting from the ExploreBio initiative will be given the opportunity to work at Merck’s BioIncubator facilities in Yavne, Israel.

The commitment involves a total volume of €20 million for five years. ExploreBio aims to invest €1 million to €1.5 million per company across up to four investments per year over a period of five years. The early-stage companies would benefit from quick access to funding and easy access to follow-up capital. The four investors have worked together on investments in different companies in the past, such as Metabomed (targeted cancer therapy) and Artsavit (using apoptosis-induction to treat cancer). With the new ExploreBio initiative, Merck and its three partners aim to engage with start-up companies in which it would otherwise be too early to invest. A second advantage for the four partners is being able to leverage the consortium’s resources and their strong relationships to work with the investments more closely and effectively. ExploreBio complements Merck’s activities in helping early-stage companies in Israel to mature. Merck set up PMatX last year and has been running its BioIncubator in Yavne since 2011.

Merck employs more than 300 people in Israel, mainly scientists, and has sites in Yavne, Herzliya, Rehovot and Jerusalem. All three of its business sectors, Healthcare, Life Science and Performance Materials, have R&D sites in Israel. (Merck 20.02)

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8.2 GemmaCert Raises $2.25 Million

Israeli cannabis analysis technology developer GemmaCert has announced the completion of a $2.25 Million Series A-1 round led by NEO Ventures, Stony Hill and Arba Finance, combined with additional seed funding from Aggrinovation. This brings the company’s total funding to over $3 million. The funds raised will be used to launch GemmaCert, the first truly non-destructive desktop cannabis composition and potency testing solution primarily for professional and home growers, processors and dispensaries. The size of a small kitchen appliance, GemmaCert assures cannabis potency before use, as well as value for money by supporting purchasing decisions. GemmaCert is an eco-friendly and easy-to-use device that combines advanced optics and sophisticated algorithms to analyze whole dry cannabis flower buds, ground cannabis samples and cannabis oils. GemmaCert allows any person to analyze and obtain accurate results in about 30 seconds.

Ra’anana’s GemmaCert aims to enable deeper analysis of cannabis, by obtaining additional knowledge that will pave the way for personalized dosing and consumption of cannabis. In the long run they expect that their breakthrough technology will enable patients and doctors to correlate cannabis composition with specific health conditions. They envision that GemmaCert will significantly enhance therapeutic treatment by cannabis and transform the medical cannabis industry. (Globes 14.02)

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8.3 Israeli Researchers Kill Cancerous Tumor With Synthetic Cells

Israeli scientists at Haifa’s Technion – Israel Institute of Technology have successfully treated a cancerous tumor, eradicating its cancer cells using a “nano-factory” – a synthetic cell that produces anti-cancer proteins within the tissue. Synthetic cells are artificial systems with capacities similar to and at times superior to those of natural cells. After experimenting with the synthetic cells in a lab, the technology was tested on mice where the proteins produced by the engineered particles eradicated the cancer cells once they reached the tumor.

The research, published in the medical magazine “Advanced Healthcare Materials,” combines “synthetic biology to artificially produce proteins and targeted drug delivery to direct the synthetic cell to abnormal tissues,” the university said. The scientists said the particles and their activity were monitored in real-time using a fluorescence microscope. By coding the integrated DNA template, the particles developed can produce a variety of protein medicines. They are modular, meaning they allow for activation of protein production in accordance with the environmental conditions. The artificial cells developed at the Technion may take an important part in the personalized medicine trend – adjustment of treatment to the genetic and medical profile of a specific patient. (NoCamels 15.02)

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8.4 Perflow Medical Closes $12 Million in Financing to Treat Complex Neurovascular Disorders

Perflow Medical has closed $12 million in financing. The syndicate included existing investors, two new international investors, and an unnamed strategic investor. Following a recent launch in Europe, Perflow stated that over 50 mechanical thrombectomy procedures for the treatment of acute ischemic stroke have been successful completed with the Stream Dynamic Neuro-Thrombectomy Net.

The new investment will support the commercialization of their first product, the Stream Net device, in Europe and select other countries and submission of the U.S. FDA 510(k) dossier. It will also support product development of two new products based on their patent-protected CEREBRAL NET Technology platform for aneurysm neck bridging and flow diversion procedures. A next-generation thrombectomy device, the Stream Net is designed to address unmet clinical needs in the treatment of acute ischemic stroke, a leading cause of long-term disability that accounts for 5.5 million deaths annually worldwide. It offers the physician full device control of the braided net diameter, length, and radial force to create dynamic wall apposition and better clot retention during revascularization in tortious anatomy.

Tel Aviv’s Perflow Medical, a privately owned medical device company, develops and manufactures innovative solutions to address complex neurovascular disorders. Perflow’s patent-protected CEREBRAL NET Technology platform, a dynamic braided net that enables adjustable neurovascular treatments, emphasizes physician expertise by combining real-time physician control, advanced device manipulation, full dynamic wall apposition, and excellent radiopacity to improve patient outcomes. Their first product, the Stream Dynamic Neuro-Thrombectomy Net, is approved in Europe for the endovascular treatment of acute ischemic stroke. (Perflow Medical 15.02)

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8.5 Smart Medical Systems Secures $8 Million in Series B Financing

SMART Medical Systems secured $8 million in series B financing. The financing round was led by Signet Healthcare Partners, a NY-based healthcare investment firm. SMART’s present financing will be used primarily to commercialize its G-EYE product, which is clinically evidenced to enhance polyp detection during cancer-prevention colonoscopy procedures. The G-EYE product is a novel add-on balloon device that works with standard endoscopes to assist visualization of the colon when screening for adenomas (pre-cancerous polyps). Adenomas are often missed during colonoscopy, which may lead to interval cancers – colon cancers that develop in the intervals between routine screening colonoscopies. Quality guidelines issued by the leading medical societies are citing adenoma detection rate as the key quality criterion for screening colonoscopy. As demonstrated in clinical studies, the use of the G-EYE balloon in routine colonoscopy results in substantial increases in adenoma detection rates and corresponding meaningful reductions in colonoscopy miss-rates.

SMART plans on investing resources to expand commercial activity with its partners in both existing markets and by expanding into other selected geographies, where the G-EYE is approved for marketing. Investment proceeds will also be directed to obtaining FDA clearance for the G-EYE product and building U.S. commercial operations to support future U.S. product launch.

Ra’anana’s SMART Medical Systems is a pioneer in the development and manufacture of innovative gastro-intestinal endoscopy devices. Its proprietary technology enhances the performance and capabilities of existing endoscopy equipment, intuitively and cost-effectively. SMART’s CE Marked and FDA cleared NaviAid products are commercially distributed in key global markets. Its G-EYE product is currently distributed in selected regions. (Smart Medical Systems 15.02)

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8.6 Motus GI Announces Closing of Initial Public Offering

Motus GI Holdings announced the closing of its initial public offering of 3,500,000 shares of its common stock at a public offering price of $5.00 per share, with gross proceeds of $17.5 million. Additionally, Motus has granted the underwriters a 30-day option to purchase an additional 525,000 shares of its common stock at the initial public offering price, less the underwriting discount and commissions, to cover over-allotments. The net proceeds from the offering will be used towards commercialization activities related to the company’s Pure-Vu System, research and development activities, including clinical and regulatory development and the continued development and enhancement of the company’s Pure-Vu System, and for working capital and other general corporate purposes. Piper Jaffray & Co. acted as the sole book-running manager and Oppenheimer & Co. acted as lead manager for the offering.

Tirat HaCarmel based Motus GI has developed Pure-Vu for cleaning the colon in advance of a colonoscopy. With subsidiaries in the U.S. and Israel, it is dedicated to improving endoscopy outcomes, lowering costs and enhancing patient experiences. The Company is focused on the development and commercialization of the Pure-Vu® System to improve the colonoscopy experience and assist in the early detection and prevention of colorectal cancer and other diseases of the rectum and colon. (Motus GI 16.02)

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8.7 DarioHealth Wins Key Contract Ensuring Its Platform to be Utilized in Clinical Study

DarioHealth Corp. entered into an agreement with a pharmaceutical company conducting a clinical study for a new drug related to managing diabetes. The pharmaceutical company is seeking FDA clearance for this drug and has selected DarioHealth to run and track the blood glucose readings of participants in the clinical study. DarioHealth has shown tremendous capabilities in demonstrating its value to consumers, which is now being recognized by securing this clinical study contract and by other verticals in the B2B diabetes space. DarioHealth’s B2B platform aims to increase user engagement during the course of the clinical study and will leverage key learnings from the Company’s direct-to-consumer success, including allowing the participants to log their BGM readings in real-time in the Dario logbook and utilize features like reminders and statistics.

Caesarea’s DarioHealth Corp. is a leading global digital health company serving its users with dynamic mobile health solutions. In today’s day and age, knowledge of health and treatment is being democratized, and we believe people deserve to know everything about their own health and have the best tools to manage their condition. DarioHealth employs a revolutionary approach whereby harnessing big data, we have developed a novel method for chronic disease treatment, empowering people to analyze and personalize self-diabetes management in a totally new way without having the disease slow them down. (DarioHealth Corp. 08.02)

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8.8 Teva Announces Exclusive Launch of Two Strengths of a Generic Version of Solodyn in the US

Teva Pharmaceutical Industries announced the exclusive launch of two strengths of a generic version of Solodyn1 (minocycline HCl) Extended Release Tablets, 65 and 115 mg, in the U.S. Minocycline Hydrochloride Extended-Release Tablets are a tetracycline-class drug indicated to treat only inflammatory lesions of non-nodular moderate to severe acne vulgaris in patients 12 years of age and older.

With nearly 600 generic medicines available, Teva has the largest portfolio of FDA-approved generic products on the market and holds the leading position in first-to-file opportunities, with over 100 pending first-to-files in the U.S. Currently, one in seven generic prescriptions dispensed in the U.S. is filled with a Teva generic product.

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. In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system, including pain, as well as a strong portfolio of respiratory products. (Teva 20.02)

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8.9 Peritech Pharma’s Novel Hemorrhoid Treatment Commercialized in 24 Countries

Peritech Pharma announced the first commercial agreement for two of its over-the-counter products, PP-110 for hemorrhoids and PP-120 for anal itching. The deal, signed with Latam BD Group, includes local manufacturing and marketing in Brazil and 23 other countries in Central and South America, and the Caribbean. Peritech is also in advanced negotiations for licensing its products in additional territories around the world.

PP-110 is a gel used for the treatment of hemorrhoids. Its efficacy was compared to Preparation-H Maximum Strength Cream, the US gold standard in hemorrhoid treatment, and found to be superior. The results of the randomized, open-label study were published in Molecular and Cellular Therapies.

Founded in 2012, Herzliya’s Peritech Pharma is a privately held specialty anal-rectal pharmaceutical company, targeting numerous indications with large markets and clear unmet medical needs. The company’s lead products are PP-110, a novel over-the-counter anti-hemorrhoidal gel, and PP-120 which treats anal itching. (Peritech Pharma 20.02)

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9.1 VisIC & TSMC to Offer Advanced 1200V GaN-based Power Device Solutions

VisIC Technologies is now sampling the industry’s first 1200V GaN modules, and is announcing a major manufacturing partnership with Taiwan’s TSMC on their GaN on silicon technologies that were announced last year. This extremely fast power switch module performs with the highest efficiency in the industry, enabling small yet efficient xEV chargers and uninterruptible power supply (UPS) systems.

The new VisIC module, based on TSMC’s 650D GaN-on-Silicon process, leverages the wide band gap technology that is revolutionizing the world of xEV power electronics and data center power supplies. TSMC’s GaN on Silicon process further provides high yield and fast ramp-up capabilities, while VisIC’s GaN transistor design brings unprecedented levels of performance. Switching time below 10 nanoseconds is ensured by a high electron mobility transistor (HEMT) design, where electrons flow in a 2-dimentional quantum well, which fundamentally differs from electron flow in SiC MOSFETs.

VisIC’s 1200V GaN device is a half-bridge module that integrates GaN high-electron mobility transistors (HEMTs) with push-pull and over-current and over-temperature protections in a single package. The design takes advantage of VisIC’s innovative Advanced Low Loss Switch (ALL-Switch©) technology, which uses a patented, high-density lateral layout that results in fast switching performance and low RDS(on). The high-voltage GaN module offers reduced gate charge and capacitances with low RDS(on), so the switching energy for the GaN device is as low as 140 µJ. Consequently, the switching losses are three to five times lower as compared to comparable silicon carbide MOSFETs.

Based in Ness Ziona, VisIC Technologies was established in 2010 by experts in Gallium Nitride (GaN) technology to develop and sell advanced GaN-based power conversion products. VisIC has successfully developed, and is bringing to market, high power GaN-based transistors and modules. (GaN is expected to replace most of the Silicon-based (Si) products currently used in power conversion systems.) VisIC has been granted keystone patents for GaN technology and has additional patents pending. (VisIC Technologies 08.02)

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9.2 Cyberbit Wins Three Gold Cybersecurity Excellence Awards for Innovation

Cyberbit has won three Cybersecurity Excellence Awards: Cyberbit Range won the Security Education Platform category, Cyberbit’s SCADAShield won the ICS/SCADA Security category and Cyberbit’s Cybersecurity for Smart Buildings was named the Cybersecurity Project of the Year – Middle East.

Gold Winner for Security Education Platform: Cyberbit Range: A training and simulation platform enabling organizations to establish and manage hyper-realistic training centers proven to boost information security team performance. The platform includes a rich catalog of training packages and scenarios, including incident response, pen-testing and OT security.

Gold Winner for ICS/SCADA Security: Cyberbit SCADAShield: A world-leading OT security platform, chosen by critical infrastructure organizations to protect ICS/SCADA networks, electric grids, transportation networks, manufacturing lines, smart buildings and data centers. SCADAShield provides unprecedented OT asset discovery and visibility, detects known and unknown OT threats and anomalies, as well as deviations from operational restrictions, by using 7-layer deep packet inspection (DPI).

Gold winner for Cybersecurity Project of the Year – Middle East: Cybersecurity for Smart Buildings: Cyberbit was selected to provide its cybersecurity product suite for a new ultra-secure government facility. The compound will serve as headquarters for sensitive national ministries and will integrate physical and cybersecurity to achieve unprecedented resilience.

A subsidiary of Elbit Systems, Ra’anana’s Cyberbit was created to protect extremely high-risk organizations worldwide. Cyberbit secures enterprises and critical infrastructure against advanced cyberthreats. The company’s operationally-proven cybersecurity solutions detect, analyze and respond to the most advanced, complex and targeted threats across IT and OT (operational technology) networks. (Cyberbit 15.02)

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9.3 Spanish Ice Sports Federation Uses Pixellot Tech to Increase Exposure of Ice Sports in Spain

Federacion Espanola Deportes de Hielo (Spanish Ice Sports Federation) has deployed Pixellot systems to broadcast ice hockey, curling and figure skating. The events will be streamed on the Federation’s website with highlight clips on some of the most relevant Spanish media platforms like Marca (the largest Spanish national daily sport newspaper), or Teledeporte (the Spanish sports channel owned by TVE).

Pixellot offers fully automated sports production systems that provide live, high-quality event coverage without any production team or camera operators. Pixellot democratizes the sporting world by allowing all types of sports to be streamed to fans. Its technology is fine-tuned using sports-specific algorithms, allowing it to professionally cover all types of ice sports, as well as soccer, football, basketball and volleyball. More than 2,000 systems around the world are streaming 16,000+ hours of live sports every month. Pixellot systems are already in place at venues around Spain, with plans to eventually provide coverage at all sites that can hold official games.

Petah Tikva’s Pixellot offers automated sports production solutions that provide affordable alternatives to traditional video capture, production and distribution systems for professional and semi-professional sport events. Pixellot’s patented technology solution streamlines production workflow by deploying an unmanned multi-camera system in a fixed location, with additional angles as required, to cover the entire field, offering a stitched panoramic image. Advanced algorithms enable automatic coverage of the flow of play and highlight generation. (Pixellot 15.02)

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9.4 CallVU’s Conversational IVR Combines Voice Assistance Technology with Visual Experience

CallVU announced the newest addition to its award winning Digital Engagement Platform, Conversational IVR. With Conversational IVR, CallVU leverages artificial intelligence (AI) so callers can use natural language to get the exact service they want without having to navigate long and complicated audio service menus. Think Amazon’s Echo or Google Home. By enabling powerful, existing technologies like AI, Visual IVR, collaboration, and Service BOTs to work together, CallVU makes it easy for banks, telecommunications providers, large customer service departments, and more to lower the number of routine calls they receive, freeing up reps for longer, more complex revenue-generating interactions. In turn, customers experience smoother, more productive service exchanges with their chosen vendors.

Tel Aviv’s CallVU offers an innovative Digital Engagement Platform that blends rich digital and interactive media with the voice channel to drive simple interactions to self-service and enhance meaningful communications to a branch-like experience. The company solves the business need of diverting customers to digital self-service, resulting in reduced call volumes, higher utilization of existing digital assets and a better customer experience. CallVU’s platform comprises enhanced Conversational and Visual IVR, collaboration, and Service BOTs, and is used by leading organizations worldwide. (CallVU 20.02)

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9.5 Allot Awarded Best Mobile Security Solution

Allot Communications has been awarded “best mobile security solution” in the 2018 Cybersecurity Excellence Awards. The contest was voted by over 400,000 members of the global information security industry. Allot NetworkSecure (previously named Allot WebSafe Personal), enables Communications Service Providers (CSPs) to offer security as a service to their subscribers, protecting mobile devices from malware and cyber threats, as well as providing parental controls. The network-based security service is already used by over 18 million subscribers in Europe, and CSPs who offer it enjoy significantly increased NPS (Net Promoter Score – a measure of customer satisfaction).

Allot NetworkSecure also allows service providers to engage with subscribers directly about recent threats or security risks, enhancing brand differentiation and providing peace of mind to consumers. As a result, some service providers report upwards of 50% penetration, compared to application-based security that is reported to be used by only three to five% of mobile users.

Hod HaSharon’s Allot Communications is a provider of leading innovative network intelligence and security solutions for service providers worldwide, enhancing value to their customers. Their solutions are deployed globally for network and application analytics, traffic control and shaping, network-based security services, and more. Allot’s multi-service platforms are deployed by over 500 mobile, fixed and cloud service providers and over 1000 enterprises. (Allot 20.02)

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9.6 RADWIN Launches World’s 1st Dual-Band 3.5 & 5 GHz 1.5 Gbps Beamforming Base Station

RADWIN announced the introduction of the world’s first dual-band smart Beamforming base station. RADWIN’s JET DUO base station encapsulates both 3.4-3.7 GHz and 4.9-6.0 GHz radios to deliver unparalleled 1.5 Gbps data speeds. By providing both the 3.5 GHz and 5 GHz bands in a single compact unit, JET DUO allows service providers to significantly reduce installation costs, tower space and rental expenses associated with deploying multiple single-band base stations. JET DUO is a breakthrough in the available capacity that it delivers. Service providers can use the 5 GHz band for residential customers while freeing up the 3.5 GHz band for lucrative SLA customers. Service providers can also utilize the 5 GHz band for customers in scenarios with direct line-of-sight (LOS) while using the 3.5 GHz band to serve customers in nLOS scenarios. With JET DUO, service providers have utmost flexibility to choose the most suitable frequency band to serve a diverse set of customers and deployment scenarios.

Tel Aviv’s RADWIN is a leading provider of Point-to-Multipoint and Point-to-Point broadband wireless solutions. Incorporating the most advanced technologies including Beam-forming antenna and an innovative Air Interface, RADWIN’s systems deliver optimal performance in the toughest conditions including high interference and obstructed line-of-sight and are deployed in over 170 countries. (RADWIN 20.02)

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10.1 Israel’s Inflation Rate Drops by 0.5% in January

Israel’s Consumer Price Index (CPI) fell by 0.5% in January, according to the Central Bureau of Statistics. New home prices fell by 1.4% in the same period, a steeper fall in the CPI than the pundits opined. The inflation rate for the twelve months to the end of January was 0.1%. There were notable falls in prices of clothing and footwear (8.8%) and fresh vegetables (2.8%). Fresh fruit prices rose 3.3%.

In its release, the Central Bureau of Statistics published a breakdown of the home price index by district for the first time. The figures, for November – December 2017, show price falls in comparison with October-November 2017 in five of the six districts. They cover both new and secondhand home prices.

The steepest fall was in the Jerusalem district, 4.2%. Prices fell 2% in the Northern district, 0.3% in Haifa, 0.2% in Tel Aviv, and 1.3% in the Southern district. The only district to show a rise was the Central district, where prices rose 0.5%. It should be noted that these figures are subject to later revision, on the basis of further transactions for the period reported to the Central Bureau of Statistics. (CBS 15.02)

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10.2 The Bank of Israel Issues Financial Stability Report for the Second Half of 2017

According to the Bank of Israel’s financial stability report for H2/17, household debt in Israel totaled 42% of GDP. This means that this debt can grow by 50% before reaching what is defined as high by international standards. During H2/17, the domestic financial system continued to maintain stability. The factors contributing to its robustness include the continued improvement in the strength and stability of the banking system, the strength of economic activity in Israel and the macro-prudential measures taken by the Bank of Israel.

In the US, the interest rate path has been in an upward trend during the past year, while in Europe the quantitative easing adopted by the central bank was reduced, but interest rates in Israel and globally remain historically low. The low interest rate reduced the costs of financing for the public sector, households and businesses, and made it easier to service debt. However, the low interest rate and yield environment over time – in Israel and abroad – increases the risk appetite in seeking returns.

The main risks identified include: a reversal of the trend in real economic activity as a result of a shock to demand from abroad or as a result of geopolitical events; a sharp and rapid decline in housing prices; a sharp change in the global long-term interest rate curve; and a reversal of the trend in the global financial markets. In our estimation, the likelihood of these risks being realized in the short term is low or medium.

The housing market, household leverage, and the asset market are the main areas where we identify exposure to risk for the Israeli economy. The parameters examined in this report show that the intensity of the exposure to the housing and asset markets remained medium-high during the reviewed period, and that the intensity of exposure to consumer credit remained medium. The developments in the overall assessment of risks and exposures to risk show that in the second half of 2017, the potential vulnerability of the economy remained unchanged at a medium level. (BoI 22.02)

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10.3 Israel is the 3rd Most Educated Country in the World

The Organization for Economic Co-operation and Development (OECD) has ranked Israel as the 3rd most educated country in adult education of 10 listed countries, above the United States, which came in 6th place. The OECD looks at adult education level as defined by the highest level of education completed by the 25 – 64 year-old population in three areas: below upper-secondary, upper secondary and tertiary education in the form of a two-year degree, four-year degree or vocational program. According to the OECD, 49.9% of Israeli adults between the age of 25 and 64 have completed some kind of adult education, almost 4% above the US. Canada ranked as the most educated country with 56.27% and Japan came in second place with 50.5 %. Other countries on the list included South Korea in 4th place, the United Kingdom in 5th, Australia, 7th, Finland, 8th, Norway, 9th and Luxembourg, 10th. (NoCamels 09.02)

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10.4 EBay Says Israelis are World’s Second-Biggest Online Shoppers

Israel was the world’s second-largest online commerce consumer per capita in 2017, second only to China, according to e-commerce giant eBay. Israelis bought products on eBay every two seconds on average and sold items on eBay every three seconds in 2017. Israelis bought 17 million items via eBay in 2017 – a 6% increase from the previous year – totaling $425 billion. The average purchase cost $25. Israelis sold more than 10 million items over the course of the year – a daily average of 30,000 items – a 50% increase from 2016. Some 47,000 new buyers from Israel used eBay in 2017.

Israelis purchased about 700,000 vehicle parts through the company last year. They also bought 633 cars, yachts and motorcycles, including a large number of luxury or antique vehicles: 52 Chevrolet Corvettes and 32 Ford Mustangs alone. In addition, Israelis bought 750,000 sports items, 70,000 pairs of running shoes and 180,000 bicycles. They also spent over $1 million in virtual reality equipment, drones and speakers.

Some 35,000 Israelis sold items through eBay in 2017, with 8,500 of the sellers earning a living doing so. Israelis sold 2 million items for the home and garden, 1 million beauty and health care items, hundreds of thousands of jewelry items and watches, and 50,000 anti-aging products. Young Israelis also placed second worldwide in online purchases, after the British. Young Israelis bought products three times a month on average and spent 66 shekels ($18) per purchase, mostly buying electronic gadgets, video games and electrical appliances. (Various 14.02)

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11.1 LEBANON: Staff Concluding Statement of the 2018 Article IV Mission

The IMF issued a concluding statement on 12 February after a staff visit to Lebanon. A more complete analysis of policy issues will be included in the forthcoming staff report.

The approaching elections are an opportunity to engage the public in a dialogue on how to support macroeconomic stability and implement structural reforms to raise inclusive growth and create jobs. Further, the upcoming Paris Conference is an opportunity to mobilize international support for these efforts. The authorities have some significant achievements in recent months, notably passing the first budget in over 12 years in October 2017. However, the overall economic situation remains fragile with prolonged low growth, public debt rapidly rising beyond 150% of GDP, and a persistent current account deficit of more than 20% of GDP. To preserve confidence in the system there is an urgent need to establish a policy framework that supports macroeconomic stability.

Key Messages

The reform agenda needs to focus on three areas:

-First, fiscal policy needs to be immediately anchored in a consolidation plan that stabilizes debt as a share of GDP and then places it on a clear downward path. Any scaling up of public investment will need to be grounded in such an adjustment plan and must be preceded by strengthening the public investment management framework.

-Second, financial stability risks should be contained, including by incentivizing banks to gradually strengthen their buffers and by taking further actions designed to strengthen credit quality.

-Third, to promote sustainable growth and improve equity and competitiveness, the electricity sector needs to be reformed and the anti-corruption regulatory framework should be enhanced and made effective.


1. Lebanon has emerged from the political crisis of November 2017, but vulnerabilities are higher. Interest rates on new local-currency bank deposits are 2 – 3% higher than before the crisis and the economic system’s dependence on depositor confidence has deepened.

2. The authorities are planning to initiate a large capital investment program (CIP). Lebanon continues to host around 1 million registered Syrian refugees (equivalent to about a quarter of the population). The aims of the CIP are to raise Lebanon’s growth and also alleviate the burden on both host communities and refugees. The authorities have indicated that they plan to raise up to $16 billion (32% of current GDP) over the next decade by tapping into the World Bank’s Concessional Financing Facility, public-private partnerships, and other facilities that provide grants or long-term concessional lending. A conference in Paris to support investment in Lebanon is tentatively scheduled for April 2018.

3. The underlying economic situation has not changed and remains challenging, with high public debt, current account deficit, and funding needs. Public debt is estimated above 150% of GDP at end-2017, and is expected to rise rapidly with a budget deficit above 10% over the forecast horizon. The current account deficit is expected to remain above 20%. The funding environment has been affected by the political crisis of November 2017. Without a significant reduction in the economy’s funding needs or an increase in deposit inflows (and given the global interest rate outlook), the Banque du Liban (BdL) will need to increase interest rates or use its sizable gross reserves to meet the funding needs of the economy. The budget of 2018 and preparation for the upcoming Paris conference could provide key platforms to initiate the much-needed economic reforms.

The Economic Backdrop

4. Growth remains low. We estimate growth to be at about 1 – 1.5% for 2017 and 2018. The traditional drivers of growth in Lebanon — tourism, real estate and construction — remain slow and a strong rebound is unlikely soon. According to the BdL, real estate prices declined by over 10% over 2017, while the purchasing managers’ index indicates that private sector confidence continues to be weighed down by political uncertainty. Inflation in 2017 reached 5%, likely due to a rise in the costs of imports, notably oil, and a weaker U.S. dollar.

5. The fiscal situation remains very difficult and poses significant risks. In July 2017, the Lebanese parliament approved an across-the-board increase in the salary scale of public sector employees and pensions of retired civil servants. A range of tax and fee increases was approved during the second half of the year. While the net fiscal impact is expected to be broadly neutral in 2018, higher personnel and interest costs will be main contributors to further deteriorating fiscal position over the projection horizon. The overall budget deficit in 2017 is expected at 7.3% of GDP, with a primary balance of 2.4% – in part due to one-off revenues from taxing higher bank profits due to BdL financial operations. In addition, subsidies to Electricite du Liban (EdL) are increasing, in part due to rising oil prices.

6. External imbalances are large and persistent. The nominal effective exchange rate appreciated sharply in recent years, while the real effective exchange rate (REER) also strengthened in 2017 by 2.8%. The current account deficit is projected to have remained above 20% in 2017. Goods exports as a share of GDP continue to decline, while imports remain strong, in part due to cheap credit made available by several BdL subsidy schemes and higher oil prices. The persistently large current account deficit and other imbalances are evidence of a significant REER overvaluation.

7. Sustaining deposit inflows is challenging. In the past, foreign-deposit inflows have been a key source of financing for the large current account- and budget deficits. However, deposit growth has eased in recent years. Private sector deposit growth was 3.8% in 2017 – below the average growth in previous years.

8. In response, the BdL continues to expand its unconventional financial operations. The BdL has introduced several new financial operations since summer 2016 that offer large incentives to domestic commercial banks to invest in BdL’s dollar-denominated term deposits. Consequently, the increase in bank exposure to the BdL has accelerated since summer 2016. While these operations have boosted the gross reserves of the BdL and the capital of banks, they have come at a cost to the BdL’s balance sheet and net FX position, and have been regressive. In addition, the BdL introduced a new operation in December 2017 to incentivize banks to secure longer maturity local-currency deposits, by increasing the interest rate on existing BdL long-term instruments held by banks by 2–3%age points.

9. The sovereign credit ratings reflect the challenges faced by Lebanon. Moody’s downgraded Lebanon from B2 to B3 in August 2017, while Fitch and S&P have maintained their ratings at B-/B3 equivalent. During the political crisis of November 2017, the spreads of Lebanese Eurobonds vis-à-vis other emerging market instruments spiked by 200-300 bps, but returned to pre-crisis levels by January 2018.

10. Lebanon’s outlook remains uncertain. Under our baseline scenario, growth will gradually rise close to 3% as external demand picks up due to a global recovery. Inflation is expected to remain around its trend of 2.5%. Overall fiscal balances are expected to reach well above 10% of GDP and public debt close to 180% of GDP by 2023. The current account deficit will remain large. Under the baseline assumption of no reforms or increase in interest rates, Lebanon’s reserve adequacy position is projected to deteriorate over the medium term. But the projection is subject to both upside and downside risks. On the upside, Lebanon’s outlook is linked closely to developments in Syria. In the event of an early resolution, Lebanon would be well placed to benefit from the reconstruction effort, as well as from the reestablishment of trade and an improvement in regional investor confidence. This would have significant and positive implications for local incomes and growth, though not enough to restore debt sustainability without adjustment. On the downside, tensions in the region could lead to escalation of conflicts or trigger security incidents, higher oil prices could increase Lebanon’s funding needs, or deposit inflows could decelerate putting pressure on foreign exchange reserves.

Policy Priorities

11. Lebanon needs urgent action to preserve confidence in the system and take advantage of international support. Over the past several years, Lebanon has maintained a policy mix of loose fiscal policy, and high real rates on bank deposits combined with cheap private sector credit through various quasi-fiscal subsidy schemes. However, given rising vulnerabilities, the need to establish a policy framework that places the economy and public debt on a more sustainable path has only increased. The increased engagement by some donor countries also offers an opportunity to secure their support for a reform and investment plan. The reform agenda needs to focus on three areas.

Critical Need for a Fiscal Consolidation Plan

12. Significant fiscal adjustment is inescapable if the current economic policy framework of a fixed exchange rate sustained by high deposit inflows is to be maintained. Lebanon’s debt is unsustainable under the baseline scenario. In the context of Lebanon’s low growth and rising global interest rates, debt dynamics will deteriorate further and public debt will increase rapidly to just below 180% of GDP by 2023 under the baseline and continue to rise thereafter. Similarly, without adjustment, government financing needs will continue to rise; the underlying codependence between banks and the sovereign will intensify; and Lebanon’s growing reliance on deposit inflows will expose the economy even more to sudden swings in depositors’ confidence.

13. The size of adjustment needed to halt the rise in public debt is still within reach, but it would require significant efforts, and would not by itself guarantee sustainability. A combination of increases in revenues and cuts in current spending amounting to about 5% of GDP is needed over the medium term to stabilize public debt as a share of GDP and place it on a gradually declining path. Such a large adjustment is undoubtedly costly, but in the case of Lebanon it needs to be viewed against mounting funding needs and high budget deficits reaching above 10% of GDP. A comprehensive fiscal adjustment and economic reform program would greatly improve economic conditions, including public debt ratios. However, it would not be without risks. The fiscal adjustment required has only been achieved in very few countries. There would also be continued large current account deficits even after fiscal adjustment, in the absence of exchange rate adjustment and/or significant structural reforms, which would leave sustainability in question.

14. The CIP could have positive effects on growth, but would need to be accompanied by strong fiscal adjustment and structural reforms. The CIP, if implemented with well selected projects, will likely boost economic growth in the short term, but at the same time will increase public debt, and possibly borrowing cost. Any scaling up of investment will need to be grounded in a comprehensive macroeconomic adjustment plan designed to stabilize public debt ratios and then put them on a gradually declining path, and preceded by improved public investment management.

15. A fiscal consolidation plan with front-loaded fiscal adjustment, embedded in a credible budget, is urgently needed. The proposed adjustment package combines revenue and spending measures. The measures include (i) increasing VAT rates, while limiting exemptions and refunds and improving compliance; (ii) reinstating gasoline excise and fuel taxes to levels that prevailed before 2012; and (iii) gradual elimination of the electricity subsidy. The adjustment proposal would significantly improve the trajectory of public debt. In addition, there is scope to contain personnel spending and undertake a civil service reform. This would reduce expenditure rigidity and create fiscal room to strengthen the social safety net to increase protection of the vulnerable.

16. The public investment management framework should be strengthened before undertaking large investment projects. Strengthening the institutional framework based on a formal assessment is crucial before undertaking large investments. Risks and fiscal costs arising from any PPPs needs to be contained. Furthermore, given capacity constraints, the authorities should consider a gradual scaling up of investment, to limit fiscal and implementation risks. Highly-concessional financing should be sought and domestic financing of public investment should be avoided.

Normalizing Monetary Framework and Preserving Financial Stability

17. The current policies of the BdL have helped preserve stability but also created market distortions. The BdL maintains the fixed exchange rate, helps finance the government by offering long-term instruments to banks, keeps interest rates steady at moderate levels by underwriting both the T-Bill and Eurobond primary markets, provides economic stimulus by a range of quasi-fiscal subsidy schemes, addresses weak banks and subsidizes deposit rates to lengthen their maturity. While the range of these operations has allowed the BdL to play a critical role in maintaining the current economic model and effectively manage crisis episodes, these policies are also associated with costs. They have resulted in the creation of new reserve money, weakened BdL’s balance sheet, and created a different set of financial stability risks by exposing banks to significant sovereign exposure and maturity mismatches.

18. The materialization of various shocks could expose vulnerabilities in the banking system. The recent increase in bank capital levels is welcome. While regulatory capital requirements exceed the minimum levels set under the Third Basel Accord, banks’ capital buffers are modest in light of their significant exposure to local-currency sovereign debt and foreign-currency BdL instruments – and sovereign risk weights are not in line with international standards. The rising interest rate environment also poses risks to banks profitability and capital positions. In addition, the slowdown in the economy and in the real estate sector, and rising interest rates, are likely to have affected credit quality and there are signs that nonperforming loans will increase. Lastly, foreign assets of commercial banks remain low, in part driven by banks transferring their FX placements from abroad to the BdL – motivated by BdL financial operations.

19. Going forward, the BdL should rely on conventional interest rate policy instead of financial operations. If deposit growth were to further soften, the BdL should maintain tight liquidity and raise interest rates to secure foreign exchange inflows – rather than relying on a repeat of financial operations. This will help the BdL to improve its FX position, and create incentives for banks to rebuild their liquidity buffers, while reducing the risk of a further rise in dollarization. It would also help to rein in the sizable private sector debt growth, contain inflationary pressures, and limit further deterioration of BdL’s balance sheet. The recommended fiscal consolidation plan would mitigate the negative impact of higher interest rates on debt dynamics, since gross financing needs would decline. The BdL should also gradually withdraw from the T-Bill and Eurobond primary market and reduce reliance on quasi-fiscal schemes.

20. Buffers in the banking system should continue to be strengthened and steps should be taken to address rising credit risks. The sovereign risk weights should be aligned with the Basel Accord, and banks should engage in forward-looking capital planning in line with their risk profiles, and linked to multi-factor stress testing. In addition, the regulatory treatment of nonperforming/restructured loans should be aligned with international good practice, monitoring of loan-loss migrations at the bank level should be improved, and sustainable restructuring of nonperforming loans should be encouraged. Lastly, it will be important to enhance liquidity regulations to incentivize increase in deposit maturities and to ensure that banks do not weaken their short-term foreign currency liquidity buffers further.

21. The authorities should strengthen the crisis management framework and AML/CFT framework. In the past, weak small- and medium-sized institutions have been promptly handled, mainly through mergers, without jeopardizing financial stability. In line with the 2016 FSAP advice, the authorities should consider developing resolution options that enable the closures of failed banks, reform of the National Institute for the Guarantee of Deposits (NIGD) to become an operationally independent agency funded by premiums paid fully by banks, increase deposit insurance coverage levels, and ensure that the resolution regime awards preferential treatment to insured depositors and the NIGD. In addition, the AML/CFT framework should continue to be strengthened in line with the 2016 FSAP advice.

Promoting Structural Reforms

22. Given eroding competitiveness and low growth, structural reforms are essential . Even after accounting for the impact of the Syrian conflict, the external balance is weaker than suggested by fundamentals, pointing to an underlying problem with productivity and competitiveness. Lowering the cost of doing business, and improving services—in particular electricity provision—will promote jobs for both Lebanese nationals and refugees, while also strengthening social safety nets. Structural reforms are essential to improving competitiveness and growth, and reducing external sector vulnerability.

23. Electricity reform and eradicating corruption are long-standing priorities. The electricity sector has not only been widely identified as Lebanon’s most pressing bottleneck, but it also remains a significant drain on the budget. A more reliable service by EdL would reduce the need for expensive private generators, even after tariff increases and contribute to more efficiency in the economy at large. In addition, the government acknowledges that corruption is widespread and is associated with large social and economic costs. Addressing corruption and improving governance should be an essential component of Lebanon’s reform agenda.

24. Electricity reforms should focus on expanding capacity and eliminating subsidies. Still relatively low oil prices present an opportunity to begin to raising tariffs up to cost-recovery levels while simultaneously expanding capacity – though in a way that protects more vulnerable consumers. The benefits of reform would be sizable, in terms of significant budget savings including by eliminating the need for private generators, reduced business costs, and more efficient consumption. The authorities could combine the fiscal adjustment with expansion of social assistance programs to mitigate the impact on low-income households.

25. The anti-corruption regulatory framework should be made effective. The regulatory framework to fight corruption needs to be significantly enhanced and made operational. This should include passage of legislation to protect whistleblowers; making the illicit wealth law more effective by making the asset declaration system for senior public officials (and their family members and associates) public, with a system of audits, and combined with measures for banks to control and report suspicious activities related to politically exposed persons; establishing and adequately resourcing the planned anti-corruption body with sufficient enforcement powers; and enhancing fiscal transparency including by strengthening governance in the revenue and customs administrations, improving revenue compliance, making the procurement system transparent, and introducing an external audit agency.

26. Finally, there is a long-standing need to improve data quality. This could improve access to international investment, and enhance evidence-based policymaking. At a minimum, the quality, frequency, and timeliness of national accounts and balance of payment statistics needs to be improved; data on employment, unemployment and wages need to be frequently collected and published; trade in goods and services data needs to be enhanced; quality of indicators to monitor economic activity need to be improved; and inter-agency dialogue and sharing of information should be strengthened. (IMF 12.02)

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11.2 KUWAIT: Fitch Says Kuwait’s Fiscal Strengths Mask Long-Term Challenges

Kuwait’s recent budget outturns and the government’s draft budget proposal point to the country’s continuing fiscal and external strengths, which are reflected in its ‘AA’/Stable sovereign rating, Fitch Ratings said on 31 January. Nevertheless, the slow pace of fiscal reform and economic diversification increases long-term risks to Kuwait’s public finances.

We have raised our estimate for Kuwait’s fiscal surplus in FY18 (ending 31 March 2018) to 1.9% of GDP, from 0.2% previously. Recent data published by the Ministry of Finance indicates that Kuwait’s budget was close to balance in the first nine months of FY18, with revenues at 84% of original budget allocations, but spending considerably lower, at 63%.

Our forecast incorporates our expectation that spending execution will pick up significantly in the final quarter of the fiscal year, when a lot of spending typically takes place. It also takes into account estimated investment income of the Kuwait Investment Authority (KIA) amounting to around 13% of GDP, which is not included in the 9M data.

Rising oil prices are a key driver of the outturns. The FY18 budget assumed an oil price of $45/bbl, but the price of the Kuwait export blend has already averaged $51.7/bbl in the fiscal year to date. Our projected surplus highlights the fact that, at around $50/bbl, Kuwait has the lowest fiscal break-even Brent price in the GCC. With estimated sovereign net foreign assets at around 500% of GDP, it also has the largest fiscal and external buffers.

Our fiscal forecast still implies a financing need of nearly $19 billion in FY18, as the government cannot spend most of the KIA investment income and is required by law to transfer 10% of its revenues (or around 4% of GDP) to the KIA’s Reserve Fund for Future Generations. If, as we expect, Kuwait’s parliament approves the new debt law increasing the sovereign borrowing cap to KD25 billion ($83 billion), then a significant part of this could be met through more local and international bond issuance.

The FY19 budget approved by the Cabinet recently proposes a broadly unchanged total spending allocation of KD20 billion (from KD19.9 billion in FY18), with a rising allocation for investment and energy subsidies but restrained spending elsewhere. However, despite likely under-execution on capital spending, overspending is a risk as rising oil prices push up subsidy costs further, and limiting public sector hiring and wage growth may be politically difficult.

As Fitch noted when affirming Kuwait’s sovereign rating in October, a generous welfare state and the public sector’s large economic role present long-term challenges to the public finances. We estimate that the public-sector wage bill alone could grow by 6% of GDP over the next five years if the trend of absorbing new labor force entrants into the public sector persists.

Kuwait’s exceptionally strong balance sheet position, which reduces pressure to take action, and parliamentary opposition have led to slower fiscal reform than elsewhere in the GCC. Parliamentary questioning and no-confidence motions against ministers are common and led to the government’s resignation in October 2017. We do not think the cabinet reshuffle that followed will accelerate reform, and do not expect VAT or excise tax to be implemented this year.

The subsidy system remains largely unreformed. Petroleum prices were raised in October 2016 but remain the lowest in the GCC, and the immediate fiscal benefit has been consumed by rising oil prices. Phased utility price hikes came into force in last year, but prices remain low and have not directly affected most Kuwaiti households. (Fitch 31.01)

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11.3 SAUDI ARABIA: Fitch Says Saudi Settlements Set to Bolster Sovereign Balance Sheet

Fitch Ratings announced on 06 February that Saudi Arabia’s receipt of more than $100 billion (15% of GDP) in settlements from the recent anti-corruption probe will bolster the government’s balance sheet, but the full impact on the Kingdom’s creditworthiness will depend on the composition of the assets and their use, Fitch Ratings says. It will also depend on the effect on the investment climate. These factors are currently unclear.

Saudi Arabia’s attorney general said last week that the Kingdom would receive close to $107 billion in settlements from some of the businessmen and officials detained by the new anti-corruption commission last November. Most of the individuals held have been released, but 56 remain in custody, the attorney general said.

Uncertainties about the nature and valuation of the settlements may persist until the relevant assets appear in published indicators such as government deposits or disclosed holdings of listed securities. Nevertheless, the stated value of the proceeds is more than double the central government deficit, which we forecast at over 7% of GDP in 2018. The Minister of Finance has announced that cash proceeds will help finance the 2% of GDP stimulus package for households announced in early January.

Press reports suggest that a significant share of the receipts are in the form of large, potentially illiquid equity stakes in domestic companies, which would have limited weight in our assessment of the sovereign’s creditworthiness. To the extent that the rest is realized in cash, it could help stem the draw-down of government deposits at the Saudi Arabian Monetary Authority (SAMA) and reduce the government’s need to borrow this year, in Fitch’s view.

However, we think the government may also choose to place a portion of the proceeds in off-budget funds to finance development project spending. As we recently noted with regard to the 2018 budget, the authorities’ emphasis on growth and extra-budgetary spending could slow progress on improving the government’s non-oil fiscal position.

Saudi Arabia’s ‘A+’/Stable rating already reflects exceptionally high international reserves, low government debt and significant government assets. We forecast sovereign net foreign assets to fall to 75% of GDP in 2018, but this would still be one of the largest among Fitch-rated sovereigns.

Our current forecasts (which do not incorporate the settlements) see government debt rising to 17% of GDP and deposits at SAMA falling to 23% of GDP this year, from 13% of GDP and 28% of GDP, respectively, in 2017. Government deposits at SAMA fell by around $40 billion last year, and despite some increases in the final months of 2017 did not show evidence of large cash windfalls in December.

The extent of the fallout from the crackdown on corruption on business and investor confidence is still uncertain. A reduction in the private sector’s assets could reduce its capacity to invest. The detention of key members of the business and political elite was not accompanied by visible capital outflows, and the immediate negative impact on financial market indicators appears to have reversed. Non-oil growth rates are in any case likely to recover from 0.2% in 2016 and 1.1% in 2017 due to slower fiscal consolidation and various stimulus measures.

In principle, a decrease in corruption would improve the business environment and improve Saudi Arabia’s standing in cross-country metrics such as the World Bank governance indicators, which form part of our sovereign assessment. However, the opaque nature of the charges and subsequent settlements may also damage investor perceptions of the Kingdom’s predictability. (Fitch Ratings 06.02)

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11.4 EGYPT: Improved Indicators Show Egypt’s Economy on Target

Egypt’s net foreign reserves hit unprecedented levels in early February to reach $38.2 billion, surpassing the 2011 level of $36 billion which had been considered a benchmark. Although the Central Bank of Egypt (CBE) has not clarified where the increase in the reserves has come from, the majority of the reserves accumulated since late 2016 has come from foreign borrowing.

The leap in the foreign reserves comes days before Egypt is set to go to the international markets for a new issue of Eurobonds of around $4-5 billion. The country sold $7 billion worth of bonds last year. However, despite the new round of borrowing the latest increase in the reserves is being viewed as a sign that Egypt’s economic reform efforts are on the right track and are bringing in investment.

The increased investment that Egypt has seen this year is a positive sign, with several new investors promising entry to the Egyptian market. Joint US-Saudi Arabian investment worth $3.3 billion is scheduled to establish a Disneyland-style amusement park in Marsa Matrouh on Egypt’s North Coast. Minister of Investment Sahar Nasr said the new park would be the largest foreign investment project agreed after the adoption of Egypt’s new investment law and executive regulations. The project is expected to trigger investment across the North Coast. The UAE-based Al-Ghoreir Group also recently signed a $1 billion investment project that is expected to meet 80% of sugar consumption in Egypt.

With the announcement of the new investments, Egypt hopes to be on track to maintain its targets for this year, put recently at $12 billion instead of the earlier figure of $10 billion. The government’s reforms have increased confidence in the Egyptian economy, resulting in higher foreign investment and economic growth, International Monetary Fund (IMF) Managing Director Christine Lagarde has been quoted as saying. Speaking on the sidelines of the Opportunity for All Conference in Marrakesh in Morocco, Lagarde said last week that Egypt would not be enjoying its current investor confidence had it not been for the implementation of the reform measures.

Egypt embarked on an economic reform program in 2016 with the support of three-year funding of $12 billion from the IMF’s Extended Fund Facility (EFF). Egypt’s GDP growth rate is also expected to reach around five% in the current fiscal year, compared to 3.5% in 2015-2016. “Investments were the main driver of the growth rate in the last quarter,” Omar Al-Shenety, managing director of the Multiples Group, a private equity firm, told Al-Ahram Weekly, though he lamented that the investments had been mostly made by the government.

The overall public-investment figure exceeds what appears in the country’s budget, as investments by authorities such as the General Petroleum Corporation and the Urban Development Authority are not necessarily included in the general state budget, Al-Shenety added.

Despite improvements, investment by the private sector remains limited, he said. Private-sector investment declined sharply after the 25 January Revolution due to the ensuing political upheaval and lack of security.

Foreign direct investment (FDI) inflows reached $8.7 billion during the 2016-2017 fiscal year, up 26% when compared to the $6.9 billion in the previous fiscal year. Besides the economic reform program which aims at achieving macroeconomic stability, the reform of investment-related laws has also taken place, the most recent being the approval of a new bankruptcy law. This was preceded by other laws facilitating the setting up of industries and other investment.

Egypt now enjoys an attractive climate for investment, Abdullah Dahlan, chairman of the board of the University of Business and Technology in Jeddah in Saudi Arabia told the Weekly, adding that investing in Egypt was a long-term commitment. Kamal Sarhan, general manager of Al-Shairco for Trading Industry and Contracting, a Saudi company operating in Egypt, believes that the investment climate is now better and procedures are easier, though licensing may still take some time.

However, despite the wide interest in the Egyptian economy, Al-Shenety said that some companies were still holding back as they were dealing with the effects of the devaluation of the Egyptian pound in late 2016. The exceptions are those dealing with the government like real-estate development companies or those whose products are exported as they benefit from the lower currency value, he said.

The Emirates NBD Egypt Purchasing Managers’ Index (PMI), a measure of non-oil private-sector perceptions of the economy, showed a pick-up in new export orders earlier this week. According to Daniel Richards, a Middle East region economist at Emirates NBD, “this stands as an indication that the difficult economic reforms enacted in late 2016 are starting to pay off.”

The PMI said new export orders had expanded in January thanks to greater demand for Egyptian goods and services on international markets.

Alia Al-Mahdi, a professor of economics at Cairo University, applauded the measures taken to encourage investment such as the new investment law and its executive regulations, the liberalization of the exchange rate, and the approval of the new industrial licensing law.

The stock market, which has a capitalization of $45 billion, has also benefited from net inflows of foreign funds, coming to LE7.5 billion in 2017, the highest since a record LE8.4 billion in 2010, according to stock-market data. Since the pound was floated in November 2016, going from LE8.8 to the US dollar to LE17.7 today, the Egyptian blue-chip index the EGX30 has climbed more than 70%.

Investment in treasuries is also expected to remain buoyant. Even with an expected 3 – 4% decline in interest rates, Egyptian treasuries will still be among the highest-yielding among emerging markets, Al-Shenety said. In US dollar terms, foreign holdings of Egyptian treasury bills are now nearly three times the previous high in 2010, with about half the investment coming in during the last few months of 2017.

To guarantee sustained investment, Al-Shenety said that the stability of legislation governing sectors with high investment potential was important. He cited the increased appetite for investment in the education sector, which being non-cyclical is not affected by the wider economy’s performance. (Al-Ahram Weekly 08.02)

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11.5 EGYPT: Understanding the Impact of Egypt’s Economic Reform on Petroleum Investment

Mahinaz El Baz wrote on 1 February in Egypt Oil & Gas that Egypt’s oil and gas industry has always been one of the core indicators of the health of the country’s economic environment. To note, in response to the fluctuations resulting during the early phases post 2011, Foreign Direct Investment (FDI) influx into the industry saw a decline, decreasing from EGP 54.3 billion in the Fiscal Year (FY) 2011/12 to around EGP 25.5 billion in FY 2013/14, according to Egypt’s Ministry of Planning.

Rigorous economic reform program and hydrocarbon modernization strategies were urgently needed to retain the investor’s confidence in the petroleum sector, in addition to unleashing the great potential of the sector. Thus, the Egyptian government started searching for opportunities by implementing a comprehensive reform program in November 2016. The program is essentially aiming to improve Egypt’s foreign-exchange market, raise the competitiveness of its investment climate, reduce the inflation rate, and control the Balance of Payments (BOP) and budget deficits. Experts argue that all those factors combined, in addition to the decreasing debt to international oil companies (IOCs), are expected to increase FDI inflow, specifically into exploration and production (E&P) activities.

Investor’s Increasing Confidence

Egypt’s major economic reform program included reshaping the country’s fixed exchange rate system. The Central Bank of Egypt (CBE) has tightened monetary policy, mainly through liberalizing the exchange rate, which is considered a milestone towards restoring the competitiveness of the economy and boosting private sector activity and investment in the petroleum sector.

Macroeconomic conditions are already showing signs of stabilization following the liberalization of the exchange rate, according to the World Bank’s (WB) Egypt Economic Outlook for October 2017. It eased shortages in foreign currency, eliminated the parallel market, and kick-started an improvement in Egypt’s external accounts. The BOP achieved a $13.7 billion surplus around 5.8% of the year’s projected Gross Domestic Product (GDP); 90% of which was realized only following the exchange rate floatation, according to the WB statistics. Moreover, FDI in the oil sector rose to $8.1 billion in FY 2016/2017, compared to $6.8 billion in FY 2015/2016, according to the Ministry of Petroleum and Mineral Resources.

“Floating the exchange rate and eliminating the parallel foreign exchange market would ensure the availability of foreign currency in the market and accordingly would provide more confidence to [oil] companies about investing in the Egyptian market at the moment, Omar El-Shenety, Managing Director, Multiples Group noted.

Furthermore, petroleum experts believe that the authorities are determined to continue with the reforms, and there is great progress in addressing various issues that IOC are facing within the Egyptian market today, which will drive further investments and increase their confidence in Egypt, said Gasser Hanter, Vice President Upstream, Country Chair and Managing Director for Shell in Egypt.

Having a similar positive view, Nicolas Katcharov, Edison’s General Manager Egypt Branch and VP North Africa and the Middle East Operations, told Egypt Oil & Gas that “as a result to the reforms, and the new regulation, increase in investments in exploration is expected.” On the other hand, he explained that “the major obstacle to further investments is the remaining $2 billion overdue towards IOC….The liberalization of the gas market, for example, intends to facilitate the progressive re-absorption of this debt. Everything depends on how the applicable rules of the new gas act will be designed, and particularly the possibility of using existing assets for an investor in the Egyptian oil and gas sector to recover,” Katcharov added.

Foreign Reserves Hike

Tracking the reasons behind the oil and gas FDI boom after initiating the reform program, experts believe that one of the main reasons is the increasing foreign reserves.

International Monetary Fund (IMF)’s executive board approved, in November 2016, the decision to assist Egypt financially in the form of an Extended Fund Facility (EFF) arrangement worth $12. The Executive Board approved its first review on 13 July 2017 and the second review on 20 December 2017.

Egypt has already received two tranches of the IMF loan. The first tranche, of $2.75 billion, was received in November 2016. The second tranche of $1.25 billion was received in July 2017 and a $500 million installment of a $1.5 billion loan from the African Development Bank was received in March 2017, according to Reuters.

Following the second review by the IMF’s executive board approved the loan’s third installment to Egypt after the second review in December 2017, yet no official announcements were made about receiving this tranche. Once paid, the third installment would raise the total sum of the IMF loan to Egypt to a sum of $6 billion, out of a total $12 billion, according to the IMF. This is half of the total amount approved by the IMF Executive Board for Egypt’s program. Completion of the third review and subsequent reviews will allow the disbursement of about $2 billion per review.

As a result of sealing the $12 billion deal between the CBE and the IMF, foreign reserves increased by 60%, reaching $31.3 billion in June 2017, equivalent to nearly six months’ worth of goods and services imports, according to a BN Paribas’ report. In general, international reserves in Egypt have averaged around $22.7 billion from 2003 until 2017, reaching an all-time high of $37 billion in December 2017 and a record low of $13.4 billion in March 2013, according to the CBE.

Economic experts agree on the positive impact of increasing reserves on foreign investors’ confidence in Egypt’s oil and gas sector. “The increase in foreign reserves strengthen investors’ confidence as it improves exchange market stability, and hence, reduces exchange risk associated with capital investment decisions, especially in regard to reducing risks of capital account restrictions on profit transfers for FDI,” Dr. Alaa El Shazly, Professor of Economics at the Faculty of Economics and Political Science (FEPS) at Cairo University stated.

Affirming the consequences of increasing foreign reserves on Egypt’s petroleum sector, Dr. Pascal Devaux, Senior Economist MENA, BNP Paribas said that “even if the investments in the oil and gas [sector] are long term, the increase in CBE foreign exchange (FX) reserves is a positive signal to foreign investors.” It is a guarantee of the capacity of any Egyptian counterpart that “the government or a private company” to repay its debt in foreign currencies, and it ensures the foreign investors to repatriate their profits as an adequate level of FX reserves means the removal of capital control,” he added.

Devaux further explained that “the EGP floating and the end of the parallel market means that the FX rate is the [real market] rate and is the result of FX demand and supply [equilibrium]. It allows the foreign investor to plan [their] investments with more accurate FX rate forecasts.”

Zero Arrears Goal

The exchange rate adjustment, in addition to the increasing foreign reserves have helped in freeing up resources to pay for part of the accumulated arrears to international oil companies, which currently [at time of going to press] stand at $2.2 billion at the end of January 2018 down from $3.5 billion in end-2016, according to the WB. “One of the main concerns for oil majors has been delayed payments and arrears at the Egyptian government. With the increase of reserves and the smooth flow of foreign currency into the economy after the free float end of 2016, this concern is diminishing, which should give oil companies the confidence needed to invest in the market, especially with the new discoveries,” El-Shenety stated.

Regarding Egypt’s goal of reaching zero debt to IOCs, Egypt’s Minister of Petroleum and Mineral Resources, Tarek El Molla declared that “it is hard to determine a specific date, but we imagine that if the current rate of payment continues we will be able to reach zero external debt within two years,” according to Reuters.

Experts find it hard to set a date as well. “As far as has been announced, some of the money coming from the IMF has already been channeled to oil companies to decrease the arrears and lately we have been seeing the arrears account getting diminished. Yet, it is hard to see arrears getting to zero soon. It will take time until arrears are fully cleared but I believe what matters at the moment are to see the balance decreasing and to see the new discoveries opening new opportunities in the market,” El-Shenety stated.

Linking between the IMF loan and IOCs’ areas, El-Shazly explained that “the improvement in BOP results related to economic reform is making debt repayment to oil companies less sensitive to the availability of IMF facilities by depending more on own resources.”

On the contrary, when asked if the Ministry of Petroleum and Mineral Resources will use the money of one of the upcoming IMF loan tranches to pay for IOCS’ arrears, Devaux explained that “the decision to repay IOCs arrears is up to the Ministry of Finance.” More generally, there is no direct link between a capital inflow (IMF loan for example) and a capital outflow (IOCs repayment), he added.

“However, the decision to repay arrears depends on the level of CBE FX reserves and of the fiscal prospects. The IMF loan contributes positively to those two elements, but not because of the amount of the IMF loan but because the IMF’s support has allowed Egypt to benefit from external financial support, and to issue Eurobonds on international capital markets. The repayment of IOC arrears contributes positively to FDI in the sector. No idea when the debt to IOCs will be zero,” Devaux further noted.

New Discoveries, New Hope

In December 2017, El Molla, announced the start of natural gas production from Egypt’s and the Mediterranean’s largest offshore field, Zohr, according to the Ministry’s official press release. As the giant field starts producing natural gas and taking more steps towards reaching energy self-sufficiency, many speculations revolve around how soon it will begin to directly impact the market dynamics, and indirectly affect the IOCs’ investment in E&P activities.

“Achieving self-sufficiency in natural gas will create more room to produce for export markets through FDI,” El-Shazly stated. On the other hand, Devaux thinks there is an indirect relationship between reaching self-sufficiency and attracting more FDI to the E&P activities, as FDI attraction will notably rely on the market – domestic consumption or exports, the selling price, and the macroeconomic situation.

On the long run, Egypt has to repay IMF’s loan. Thus, a debate started about the role of natural gas export revenues in covering such a debt. “Expansion in natural gas production and exports will normally help in debt repayment including IMF’s,” El-Shazly said. Giving more explanation, Devaux mentioned that “any factor that positively impacts the current account balance is positive for the Egyptian capacity to repay external debt.”

While El-Shenety believes that having the new discoveries is great news and will decrease the trade balance deficit, and thus enhance the government’s capability to pay its external dues to IMF and others. “Still I don’t see us having a surplus that we can export and when it comes to paying back IMF loans and other external debt, I believe the government needs to foster broad based economic recovery across a wide variety of sectors especially tourism and industrial sector which can generate sustainable revenues in foreign currency to help with external debt repayment. Counting on oil discoveries alone will not be sufficient,” he stressed.

The country’s ongoing transformational economic reform program has already started spurring the economy, enhancing the country’s business environment, and staging a balanced and inclusive growth. The program is widely endorsed by key development partners, including the WB’s programmatic DPF series, the IMF’s EFF, and the African Development Bank parallel financing.

The implementation of monetary and fiscal reforms along with the gradual restoration of confidence and stability are starting to yield positive results. Consequently, both economic and petroleum experts are optimistic about the potential effect of the economic reform on the oil and gas industry, especially its ability to attract extra FDI after getting back the foreign investors’ confidence. Moreover, discovering Zohr has its positive effect on the industry as well. (EOG 01.02)

11.6 SUDAN: What Sudan Can Learn From Egypt on Exchange Rate Policy

Brendan Meighan wrote in Global Business Outlook on 13 February that Sudan’s refusal to liberalize the pound’s exchange rate and ongoing battle with the black market have ignored the lessons from Egypt’s own mistakes in managing its currency.

Sudan’s recent history has been marked by economic decisions that have not taken into account the long-term growth of the country. Unsurprisingly, since 2011, when South Sudan seceded and took with it roughly three quarters of the country’s oil revenues, Sudan’s macroeconomic situation has deteriorated. Businesses are grappling with an acute shortage of foreign currency, rising inflation, and a dearth of safe assets. The central bank has refused to release statistics on foreign reserve levels, which likely means they are largely depleted. On 4 February, for the second time in a little more than a month, Sudan devalued its currency in an attempt to reconcile the official exchange rate with that of the black market.

None of this is particularly remarkable by itself. However, what makes Sudan’s recent drama particularly tragic is that many of the troubles it is now facing mirror those Egypt faced several years ago. Yet, Sudan’s solutions seem to demonstrate no understanding of the lessons wrought by Egypt’s ill-fated attempts to manage its currency.

Like Egypt, Sudan now finds itself facing a series of economic challenges that are highly interconnected. Aiming squarely at only one source of distress often exacerbates and complicates others. For example, seeking to prevent high levels of inflation by supporting the value of the domestic currency can bring foreign currency reserves down to a dangerously low level if a country’s balance of payments is negative. Making domestic savings more desirable than overseas investment by raising interest rates also makes domestic borrowing more expensive. However, if investors and businesses begin to see depreciation as inevitable and they begin to move their money out of the country, this often reduces foreign currency reserves which are needed for international trade. In this case, a central bank’s only option may be to set import restrictions or capital controls, essentially restrictions on the movement of money out of the country. Unfortunately, this often makes foreign investors skeptical of their ability to repatriate profits in the future and further prevents the needed hard currency from entering the country. Ironically enough, the very inflation the government had sought to avoid in the first place may be triggered by shortages brought on by domestic importers’ increasingly limited access to foreign currency.

Of course, none of this was inevitable in the case of Sudan. Egypt’s experience prior to liberalizing its exchange rate and receiving the first tranche of its loan from the International Monetary Fund (IMF), shows that overvalued currency pegs coupled with current account deficits are, barring exceptional circumstances, quite difficult to support in the long run. Egypt resisted liberalizing its exchange rate for years. When it did, the value of the pound dropped suddenly – while a more flexible exchange rate regime such as Tunisia’s, which employs something akin to a managed currency float, allows currency to depreciate gradually as the external pressures caused by a widening current account deficit ebb and flow.

Historically, a fixed exchange rate, such as that formerly used in Egypt and currently employed in the Gulf Cooperation Council (GCC) countries, helped keep domestic prices for imports steady. This is a justifiable policy for the GCC members, whose economies are heavily reliant on commodity exports and need to import most consumer goods from outside, and who also have large foreign currency reserves. The downside is that imported goods can become more expensive if the currency peg moves and the currency depreciates. Although exported goods thereby become less expensive, the changes in import prices usually take effect immediately, while it can take exporters months or years to ramp up production of their goods to take advantage of their newly lowered costs in the international marketplace.

While Sudan would likely have benefited in the long-run from a flexible exchange rate like Tunisia’s, Sudan’s monetary policy has followed a more stubborn and confusing path, especially following the breakup with South Sudan in 2011. The loss of the oil revenues from South Sudan pummeled Sudan’s economy, blowing a hole in its current account balance (according to IMF estimates) and forcing several devaluations to the Sudanese pound. Whether Sudan realized that mimicking Egypt’s mistakes was a bad idea is irrelevant, as it remains clear that the exchange rate of the Sudanese pound was unsustainable. However, while Egypt did eventually liberalize its currency and allow market forces to take control, Sudan has no plans to do so. Beginning in late 2016 and continuing through 2017, the Sudanese economy utilized four different U.S. dollar exchange rates: the official central bank rate of 6.7 pounds, primarily for government transactions; the wheat import rate of 7.5 pounds; a commercial bank rate of 16 pounds, intended to incentivize Sudanese expatriates to send remittances home through the banking system; and the highly variable black market rate.

At the IMF’s urging, effective January 2018, the government devalued the pound and unified the official exchange rates at 18 pounds to the dollar (a 62.8% fall from the official rate) also implementing a band, in which the currency could move between 16 and 20 pounds to the dollar based on market forces. While this was clearly a compromise by the Sudanese central bank, the black market price of the dollar rose to 38 pounds by the end of January, which prompted Sudan to devalue the pound again on 4 February, moving the band to between 28.8 and 31.5 pounds to the dollar. This effectively means the official exchange rate is 31.5 pounds to the dollar, the weakest acceptable rate closest to the black market rate. In doing this, Sudan appears to be copying Egypt’s short-sighted and ultimately doomed effort to implement deposit restrictions on foreign currency acquired from the black market.

In early 2015, with foreign currency reserves diminished from their pre-revolution highs and the black market rate for the Egyptian pound beginning to creep upward, Egypt placed a cap of $10,000 per day and $50,000 per month on deposits of U.S. dollars and other foreign currencies. Importers would in theory be forced to go through the conventional banking system in order to acquire foreign currency and open letters of credit for imports. By placing a limit on the amount of foreign currency that could be acquired on the black market and deposited in banks, the Egyptian government hoped to lower the usefulness, and thus the exchange rate, of black market dollars. While this briefly stabilized the black market dollar rate, it did little to quell the demand for dollars, which further weakened the pound.

Sudan, apparently believing the laws of supply and demand do not apply to its domestic market, has also implemented restrictions. Instead of simply placing a cap on the maximum deposit for a given period of time, Central Bank Governor Hazem Abdelqader announced that importers would be prohibited from depositing any black market dollars. Abdelqader followed this with the suggestion that the central bank would intervene if additional foreign currency liquidity was needed – laughable given the Central Bank appears to have almost no foreign currency in reserve.

Unfortunately, at least in the short term, Sudan’s predicament is likely to grow even worse. Since the United States lifted sanctions on the country in January 2017, foreign currency is more useful, thereby increasing demand and raising the black market price for dollars. This may be counteracted to some extent by freer access to the international marketplace for Sudanese exports. However, Sudanese exports have been stunted by the overvalued exchange rate of the Sudanese pound and the U.S. sanctions, and it may take years to develop and fully take advantage of the newly lowered rate.

The normal course of action would be to work with regional and global multilateral organizations to come up with an economic reform plan. However, there are a number of outstanding domestic and international political issues standing in the way of such cooperation. While sanctions were lifted, Sudan is still listed on the U.S. Government’s State Sponsors of Terror list, which requires the United States to oppose (and effectively veto) any loans from the World Bank, IMF and other multilateral development organizations. Such loans are no panacea for economic mismanagement – and frequently come with a list of required reforms – but can provide much-needed liquidity and a tacit vote of confidence that may encourage foreign investment. At the same time, Sudan remains on tenuous terms with its neighbors, as negotiations with Egypt and Ethiopia over the Grand Ethiopian Renaissance Dam remain contentious.

For Sudan, Egypt should not serve as a model economy, but instead a case study in what not to do when attempting economic reforms and exchange rate management. However, so far Sudan has made no indication that it plans on attempting to learn from Egypt’s missteps. In order to improve its current lot, Sudan has to balance the need to address diplomatic concerns, such as improving its relations with the United States and its North African neighbors, with its efforts to stave off a complete economic collapse. Given how tenuous the current economic situation is, and the political ripple effects such economic tensions and shocks have, it is doubtful that the chaos will decline any time soon.

Brendan Meighan is a macroeconomic analyst focusing on the Middle East. (GBO 13.02)

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11.7 TUNISIA: Can Tunisia’s Economy be Saved?

Ahmed Nadhif posted in Al-Monitor on 6 February that seven years after the ouster of President Zine El Abidine Ben Ali in January 2011, Tunisia continues to struggle with economic and consequent social crises that democracy and respect for basic freedoms cannot alone alleviate. The financial crisis has proven to be the most challenging of Tunisia’s problems.

Data published by the Central Bank of Tunisia on 25 January revealed that the growing trade deficit has led to the further erosion of the country’s foreign currency reserves. The bank’s website indicated that reserves had dropped to 12.3 billion dinars ($5.1 billion) on 23 January, enough for 89 days, a 15-year low. At the end of 2016, reserves had been sufficient to cover 106 days.

Independent economic journalist Abdel Salam al-Harshi discussed the decline and its repercussions with Al-Monitor, explaining, “Foreign currency reserves are a varying indicator that fluctuates constantly. When the government settles part of its foreign debt or buys large machinery, like planes or military equipment, foreign currency reserves drop. When Tunisian expatriates make big transactions [requiring wiring foreign currency into the country], the reserves rise again. Therefore, the drop in foreign currency reserves at the Central Bank is not as dangerous as everyone is saying, but if it persists, then it would become troubling.”

Harshi attributed the current decline to a “rising deficit in the trade balance, which reached 15.5 billion dinars [$6.5 billion] in 2017, compared to approximately 12.6 billion dinars [$5.3 billion] in 2016, according to figures from the state-affiliated National Institute of Statistics. Oil prices are also fluctuating, and imports have soared. I believe this is what pushed the Central Bank to release a list of nonessential imports to limit the drop in foreign currency.”

Central Bank Gov. Chedly Ayari had on 14 November issued a directive prohibiting Tunisian banks from lending to traders to fund the import of around 220 consumer products, including mineral water, wine and other alcoholic beverages, chocolate, marble and cosmetics.

An official at the Central Bank of Tunisia told Al-Monitor on condition of anonymity that the bank’s foreign reserve balance had dropped due to the local black market in foreign currency and dwindling foreign investments and exports. He blamed the security and political situations for this state of affairs.

Also according to the source, any government plan to overcome the current financial crisis will require encouraging exportation and controlling importation, including limiting the import of nonessential commodities for which there are locally produced substitutes, because the imports drain the foreign currency reserve. In addition, the currency black market should be eliminated or integrated into the official market. Most important, a positive business environment, supported at the security, military and political-administrative levels, should be created to promote foreign investment.

Laila al-Chatawi, a member of parliament’s Fiscal and Development Committee, told Al-Monitor, “Part of the economic and financial crisis in the country is linked to the law and order situation, as there is a parallel economic network operating outside the official economy and trading in foreign currency outside the official banking framework.”

“For this reason,” Chatawi said, “the competent security authorities should limit the black market, which is draining huge financial resources and contributing to money laundering. I am afraid we might be classified among high-risk countries that are noncompliant with the anti-money-laundering [AML] standards as per the Basel AML Index.”

Tunisia ranks 59th on the Basel AML Index. The European Union had designated Tunisia a tax haven in December 2017, but removed it from the list on 23 January 2018.

According to a study published in November by the Tunisian Institute for Strategic Studies, a government research center, the parallel economy contributes to almost 20% of gross domestic product and employs 31% of the work force.

In August 2016, Prime Minister Youssef Chahed had promised in his acceptance speech that his administration would work on “fulfilling five important priorities, including controlling financial balances.” A year and a half later, Tunisia’s financial and economic problems have pushed people to take to the streets to protest against social conditions. They also object to the austerity measures that the government has implemented to address the crisis, such as increasing the price of basic consumer goods. These measures have jeopardized social peace.

Ahmed al-Mannai, the director of the Tunisian Institute for International Relations, told Al-Monitor, “The democratic transition that the country has been undergoing for seven years cannot survive amid the economic crisis. The middle class, which has always supported democracy, is struggling the most in Tunisia amid the erosion and loss of its purchasing power. Any governmental bet on stability and on seeing the democratic transition through cannot happen without an economic policy boosting the situation of the middle class and reducing social inequalities. Small and medium-sized enterprises should be promoted, and fiscal justice should be imposed all the while fighting corruption, which has soared in the past years.”

Mannai added, “Chahed addressed the international conference organized by the International Monetary Fund and the Arab Monetary Fund in Marrakech on 30 January. He said that economic development can only happen in a healthy social environment, which itself cannot be achieved without economic development. This leaves us with a complex and contentious situation. For this reason, people are nostalgic for the former regime, because democracy — despite securing individual and political freedoms — has failed to fulfill their economic aspirations. This could endanger democracy in the future.”

The economic crisis in Tunisia is intertwined with the events of the past seven years. The central government’s authority weakened, terrorist operations increased and political confrontations over power sharpened. All of these factors have contributed to Tunisia’s current situation.

Still, the ruling coalition shares responsibility because it has not provided the political stability necessary for economic development. Rumors of a change in the current government are circulating, but that would only further harm the economy. The successive governments following the 2011 uprising have deprived the country of stability and prevented politicians from implementing their programs.

Ahmed Nadhif is an independent writer and journalist. He is the author of “Tourist Rifles: Tunisians in World Jihadist Networks,” published by the Tunisian Institute for International Relations in 2016. (Al-Monitor 06.02)

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11.8 ALGERIA: Europe and Algeria – The Trust Deficit

The European Union is keen to enhance co-operation with Algeria, but the North African nation, apparently wary of post-colonial meddling, is showing little interest. For political analyst Isabel Schafer writing in Qantara, the case is not that simple.

Europe’s interest, or more specifically that of the EU and several EU member states, in an enhancement of co-operation with Algeria has grown – at the latest since the refugee crisis. More than ever before, the EU is hoping that Algeria, as well as other North African states, will halt further migration from sub-Saharan Africa towards Europe.

Refugees and migrants seeking to reach the EU often initially travel via the dangerous path through the Sahara and then wait in Algeria for a suitable opportunity to reach Europe via Morocco, Tunisia or Libya. But more stringent coastal patrols in Libya mean that many are forced to turn back to Algeria. Only very few migrants risk the direct sea crossing from Algeria to the EU, as very few boats get past the Algerian coastguard.

Exacerbated Social Misery

For those who have to remain in Algeria, life is hard; they seldom find work, they have no protection or rights and are exposed to increasing levels of racism. Young women from the sub-Sahara begging with their small children are now a common sight in Algeria’s urban centers. Few civil-society groups are engaged in the support of refugees here.

Since the 2014 drop in the price of oil, many Algerian citizens have found themselves struggling in increasingly difficult circumstances. Inflation, social hardship and youth unemployment have been exacerbated by the economic crisis. EU pressure to stem immigration has in turn additionally exacerbated social problems in North African transit nations such as Algeria.

Despite its oil and gas wealth, Algeria has also been the scene of regular social protests, including cases of self-immolation – events that seldom make the news in Europe. The Algerian government conducts stringent controls along all the nation’s borders, as far as this is geographically possible and is adopting an increasingly hard-line stance towards migrants. There have been several instances of mass deportations in recent years.

Since the December 2016 attack in Berlin, the German government demands that Algeria – and other Maghreb states – take back more “potential attackers” and migrants involved in criminal activities. From Algeria’s perspective, such persons have been radicalized in Europe and should therefore be prosecuted there. The number of deportations implemented by the Federal Republic has increased from 57 in the year 2015 to 450 in 2017.

Algeria – the “Maghreb’s police officer”?

But it is not just the refugee crisis that has heightened Europe’s interest in co-operating more closely with Algeria. In security questions too, the EU perceives Algeria in the role of the “Maghreb’s police officer”. The expectation is that Algeria should prevent the continued spread of radical Islamists in the Sahel zone and stem the development of cells in North Africa.

Indeed, Algeria does to a certain extent play this role in the Maghreb and neighboring Sahel zone; not because Europe wants it to, but due to its own security-policy interests. After all, as a consequence of the deep wounds inflicted by the civil war, which lasted from 1991 to 2002 and left more than 200,000 dead, the regime wants to prevent a resurgence of radical-Islamist violence and safeguard security at home – at all costs.

Algeria, by area the largest country in Africa, borders Mali and Niger – major transit lands for refugees. The government in Algiers is co-operating with neighboring Libya, in an attempt to stabilize the civil war-torn country. Ninety percent of migrants and refugees who make their way to Europe set out from Libya. Algeria has also pursued a tough security policy against Islamists in recent years

To this end, the Algerian government has continually – and in particular since the outbreak of the Libya conflict – beefed up its security control of the nation, bolstered its military presence in the border regions with Tunisia, Libya, Niger, Mali and Mauritania and intensified its diplomatic and security co-operation with its neighbors.

The security situation on a national level has in the meantime seen significant improvement. Nevertheless, army and security forces continue to root out isolated weapons caches and “sleeper cells”. There have also been a number of smaller-scale attacks, attempted attacks and violent clashes between security forces and radical Islamists in various parts of the country. Less successful, on the other hand, is thus far the regional co-operation in the fight against illegal trade in the Maghreb-Sahel zone, where the trafficking of drugs, weapons and people continues to flourish.

A lack of competitiveness

Economically, Algeria is first and foremost of interest to the EU as an energy supplier and sales market. For example, bilateral EU-Algerian relations within the framework of the controversial Association Agreement (in force since 2005, revised in 2010 and 2017), aimed at creating a free trade zone, are primarily focused on economic and technological co-operation. But because barely any competitive small and medium-sized businesses exist or can be sustained in Algeria, the main beneficiary of the agreement has thus far been the EU.

For Algeria on the hand, Europe represents not only a key trading partner, but also an oil and gas customer. President Bouteflika is weakened because of his serious illness; the Ouyahia government lacks the vision necessary to reform and liberalize the economic system.

For Algeria, the EU remains an abstract construct. It prefers to negotiate with individual EU member states, first and foremost with France, Italy, Spain, sometimes even with Germany. Ever reticent, Algeria shows little interest in European political formats – such as the European Neighbourhood Policy or the Union for the Mediterranean (UfM).

In fact, Algeria has shown herself far more likely to seek constructive co-operation in the region, acting as mediator in the Mali conflict and the Libyan civil war, as well as in the Nouakchott Process initiated by the African Union.

Historic distrust of Europe

Distrust of Europe is understandably great for historic reasons. Requests from Europe are swiftly perceived as meddling or overstepping sovereignty and blocked; the political influence of the EU is appropriately small.

But beyond its security-policy and economic interests, the EU should not neglect the civil-society, democracy-promoting and development-policy dimension of its co-operation with Algeria. After all, owing to the security co-operation and the anti-migration pressure exerted by the EU, existing limitations on the rule of law, political freedoms and human rights in Algeria are only likely to increase. In turn, greater openness on the Algerian side for an intensification of civil-society co-operation could help to boost mutual trust in the long-term. (Qantara 16.02)

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11.9 TURKEY: IMF Staff Concluding Statement of the 2018 Article IV Mission

The IMF issues a concluding statement on 16 February 2018 following its latest Article IV mission to Turkey.

Following a slowdown in activity in 2016, Turkish growth recovered sharply last year with the help of policy stimulus and favorable external conditions. Such has been the strength of the recovery that the economy now faces signs of overheating: a positive output gap, inflation well above target, and a wider current account deficit. This increases Turkey’s potential exposure to changing global conditions and underscores the need to address vulnerabilities. To lower internal and external imbalances, staff recommends a recalibrated policy mix – further monetary tightening is warranted, as is careful management of fiscal and quasi-fiscal policies, as well as associated contingent liabilities. Macro-prudential policies need to be squarely focused on maintaining financial stability and adequate buffers. Targeted structural reform implementation would underpin growth.

Recent developments, outlook and risks

1. Growth was very strong last year, with some moderation expected in 2018. In 2017, a sizeable credit impulse—driven by state loan guarantees—and fiscal policy supported the economy, at a time when domestic demand seemed anemic. Exports increased sharply, due to stronger external demand, against the backdrop of a softer lira. Growth is estimated at about 7% in 2017, well above potential. As a result, the output gap now appears positive, with symptoms of associated imbalances. Under staff’s baseline, growth is expected at 4% this year, reflecting in part a weaker policy-driven impulse.

2. Inflation is well above target and is expected to remain so without further policy adjustment. Initially fueled by the large lira depreciation, inflation has since increased, in part due to higher demand, rising cost pressures, and rising inflation expectations. Although base effects are likely to see headline inflation fall during the early part of this year, in staff’s view, without further interest rate increases, inflation is likely to end the year once again in double digits.

3. The external current account deficit looks set to stay above 5% of GDP. Although exports have performed very well, higher fuel prices, strong demand-led and gold import increases led to a wider current account deficit last year. This was financed mainly by Eurobond issuance, other portfolio inflows, and by reserve drawdowns, with foreign direct investment (FDI) inflows remaining short of desirable levels. Despite strong partner growth and a recovering tourism sector, continued domestic demand strength and higher oil prices are expected to lead to a further widening of the current account deficit this year, with external financing needs remaining large. Reserves remain relatively low, covering only around half of Turkey’s gross external financing needs.

4. Areas of risk could become more apparent should external conditions take a negative turn. Vulnerabilities include large external financing needs, limited foreign exchange reserves, increased reliance on short-term capital inflows and high corporate exposure to foreign exchange risk. Signs of possible oversupply in the building and construction sector are also emerging. While risk triggers are, by their nature, difficult to project, they could stem from domestic developments or regional geopolitical developments or changes in investor sentiment towards emerging markets.

The Policy Agenda

The main policy challenge is to recalibrate macroeconomic policies in a measured, yet credible, manner that fosters sustainable growth, while protecting the Turkish economy from downside risks. Combined with focused structural reforms to underpin medium- and longer-term growth, this would leave Turkey better placed to handle any possible reversal of global sentiment towards emerging markets.

Monetary and financial sector policies

5. Reining in inflation remains the most important challenge for monetary policy. The Central Bank of the Republic of Turkey (CBRT) effective interest rate hikes of almost 500 bps over the past year have not been enough to contain inflation and prevent inflationary expectations from increasing. This is because all three channels – demand-pull, cost-push, and exchange rate depreciation – have exerted upward pressure on inflation. In staff’s view, as part of a recalibrated policy package, a front-loaded monetary tightening is called for to secure the credibility of the central bank’s inflation forecasts and to move closer, over time, to its 5% inflation target. A credible tightening might also allow the CBRT to increase its international reserves against the backdrop of still-favorable global liquidity conditions. Simplification of the monetary framework over time would also be welcome.

6. Recent measures to address foreign exchange (FX) borrowing risks to small- and medium-size enterprises (SMEs) are a step in the right direction. Banks rely heavily on wholesale FX funding and the corporate FX debt burden is high, a source of vulnerability in the economy. Recent calibrated moves to limit FX borrowing of unhedged corporates are welcome and generally aligned with staff’s recommendations in past years. Further tightening of regulations on corporate FX borrowing would mitigate against vulnerabilities stemming from the open FX positions of some large corporates.

7. The authorities’ decision to better target the Credit Guarantee Fund (CGF) is welcome. Last year’s CGF expansion—introduced at a difficult juncture—made a strong contribution to confidence and growth, but it put pressure on bank funding costs and could have been more targeted. Current signs of overheating and the need to reset sustainable longer-term incentives for banks and SMEs argue for a gradual phase-out of this support mechanism, along with the planned targeting of the unused portion of the facility.

8. Macro-prudential tools need to keep their focus on preserving financial stability. Macro-prudential policy changes should be guided by longer-term considerations of maintaining financial stability and building buffers, rather than for demand management purposes. Policies that eased consumer and corporate borrowing, which began in 2016, should be revisited.

Fiscal policy

9. Turkey’s strong fiscal anchor has played a critical role over the years. However, looking ahead, the authorities need to guard against two sources of pressure: the growing gap between primary spending and tax revenue, amid growing rigidities in the budget; and a narrowing of fiscal space through increasing contingent liabilities. This requires setting fiscal and quasi-fiscal policies carefully, including limiting guarantees for long-term development projects to those that appear most viable.

10. Steady and measured fiscal consolidation would help reduce imbalances and bolster investor sentiment. The expiration of temporary tax breaks and the introduction of new tax measures—such as the corporate income tax rate increase, reductions of income tax exemptions, and an increase in consumption taxes on motor vehicles—are welcome. This has, however, been accompanied by new tax exemptions and employment subsidies and further measures are needed to bring the general and central government balances to primary surpluses of about ½% of GDP by 2019. These include broadening the revenue base, raising direct taxation, improving the efficiency of the value-added tax (VAT) system; limiting budget rigidities, principally by not further encumbering the wage bill; strengthening budgetary discipline by containing ad-hoc subsidies and setting credible time limits on such subsidies; and providing transparent and timely costing. The authorities’ ongoing efforts to reform the VAT system are welcome.

11. Fiscal transparency and fiscal risk management reforms are in train but need further improvement. Public-private partnerships (PPP) activity has risen sharply, as have related and other contingent liabilities. Staff welcomes measures by the authorities to strengthen the PPP risk management and reporting framework, which were supported by recent IMF and World Bank technical assistance. Building on this would help preserve fiscal space and underpin long-term debt sustainability. More broadly, the scope and role of extra-budgetary and other non-central government entities, and institutions such as the newly created Turkish sovereign wealth fund (SWF), need to be carefully defined and monitored, with the maximum degree of transparency.

Structural policy

12. Focused structural reforms would help underpin medium-term growth. Total factor productivity growth has been lackluster over the past decade, with economic growth reflecting mainly increased capital and labor inputs. Advantage should, therefore, be taken of current strong cyclical growth conditions to implement needed reforms.

13. Labor market reform is crucial in this regard. There is a skills gap which risks undermining what should be Turkey’s natural demographic advantage. Equally, addressing the improving, but still low, female labor participation rate is important to raise potential growth. Without further reforms in these areas, significant resources will remain untapped. Further reforms could focus on: improving educational outcomes through tertiary level and further supporting vocational training; enhancing opportunities for flexible and part-time work, as well as child-care facilities; and reforming the severance pay system.

14. Other structural reforms could also help growth prospects. These include improving the investment climate and institutional capacity, as well as fostering higher participation in the voluntary private pension system.


15. Some enhancements to further strengthen Turkey’s economic statistics would be helpful. Staff welcomes the authorities’ plans to introduce further refinements to high frequency indicators, and to provide a breakdown between private and public investment in the national income accounts this year. Staff urges swift completion of these refinements, which would help further bolster transparency.


16. Turkey’s generosity in hosting refugees serves as a global example. The introduction of work permits for those under temporary protection is very welcome, recognizing that the informal sector has been one of the main modes of employment for refugees. To ensure further formal labor market integration of refugees, the application process for work permits and business creation could be simplified further. (IMF 16.02)

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11.10 GREECE: Fitch Upgrades Greece to ‘B’ from ‘B-‘; Outlook Positive

On 16 February 2018, Fitch Ratings upgraded Greece’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B-‘. The Outlook is Positive.

Key Rating Drivers

The upgrade of Greece’s IDRs reflects the following key rating drivers and their relative weights:

Medium: Fitch believes that general government debt sustainability will improve, underpinned by sustained GDP growth, reduced political risks, a track record of general government primary surpluses and additional fiscal measures legislated to take effect through 2020. Expectations of a smooth completion of the third review of Greece’s ESM program reduce risks that the economic recovery will be undermined by a hit to confidence or by the government building up arrears with the private sector.

The Positive Outlook reflects Fitch’s expectation that the fourth review of the adjustment program will also be concluded without creating instability by August 2018 and that the Eurogroup will grant substantial debt relief to Greece in 2018. The concessional nature of Greece’s public debt implies that debt servicing costs are low despite the high stock of public debt. The average maturity of debt is favorable at 18 years, among the longest across all Fitch-rated sovereigns.

We expect the Eurogroup to grant further debt relief to Greece this year. The set of debt relief measures will aim to keep gross financing needs below 15% of GDP in the medium term and below 20% of GDP thereafter, as stated in the 15 June 2017 Eurogroup statement. This is set to improve public debt sustainability over the long term and should support market confidence, which will help underpin post-program market access.

We think both Greece and its official sector creditors will aim for a hybrid “clean” exit from the €86 billion European Stability Mechanism (ESM) program in August 2018, which we think would not entail a precautionary credit line but would still involve significant conditionality. In our view, parts of the medium-term debt relief package may be subject to conditions likely to be centered on implementation of the fiscal measures legislated to take effect beyond August 2018.

European partners appear to be shifting the focus of Greece’s future conditionality from strict fiscal targets towards linking these to medium-term GDP growth. The Eurogroup has agreed to start technical work on a “growth adjustment mechanism” to link debt relief measures to actual growth outcomes over the post-program period. In our view, this would be an important development as it increases confidence that the general government debt will remain on a sustainable path in the face of adverse growth shocks.

Greece continues to make progress towards the resumption of regular bond issuance. On 8 February the sovereign placed a new benchmark €3 billion seven-year bond with a yield of 3.5%. Funding costs have declined sharply from one year ago, when the 10-year bond yield was over 7.0%. The improving macro picture, on-going compliance with the terms of the ESM program and expectations for a smooth completion of the third review support the government efforts to re-establish market access. We expect the government to continue to issue market debt and use the proceeds to smooth further the maturity profile and build a sizeable deposit buffer before the end of the ESM program.

The deposit buffer will be built through proceeds from bond issuance and parts of the ESM disbursements. There will also be significant unused resources available from the ESM envelope (€27.4 billion according to ESM estimates). The reduction in the estimate for program financing is mainly due to lower bank recapitalization needs, higher primary surpluses and improved cash management of subsectors’ financial resources. Whether the unused funds will be made available to Greece at the end of the program is not yet decided and will form part of the negotiations around the fourth review. Fitch expects that at least part of these funds will be made available to support the transition towards full market access.

In our view, the political backdrop has become more stable and the risk of a future government breaching conditionality through reversing policy measures adopted under the ESM program is more limited. The Tsipras government legislated a set of politically difficult measures over 2015-17 and we think it would be politically difficult for the same government to backtrack on these once the program has ended. The main opposition party, New Democracy, has less ideological opposition to the ESM program measures and is strongly pro-European.

Greece’s IDRs also reflect the following key rating drivers:

The ratings are underpinned by high income per capita levels, which far exceed ‘B’ and ‘BB’ medians. Greece’s financial crisis and recession exposed shortcomings in government effectiveness and put acute pressures on political and social stability. However, governance is still significantly stronger than in most sub-investment-grade peers.

The economy is recovering. The Greek economy grew for three consecutive quarters, for the first time since 2006. GDP growth is mainly export driven, with a declining contribution from private consumption. Improved external competitiveness combined with solid external demand has underpinned export growth. Fitch expects growth of 2.1% in 2018 and 2.6% in 2019. Pent-up investment demand, a declining unemployment rate and continued clearance of government arrears are set to support domestic demand. Solid external demand should support export performance. Net trade contribution is likely to remain small, due to solid import growth.

Public finances are improving. In 2017 we estimate Greece recorded a primary surplus of 1.90% of GDP, above the ESM program target of 1.75%, owing to higher than budgeted revenues and expenditure restraint. We expect the government to record an average primary surplus of 3.4% of GDP over 2018-22. Assuming nominal GDP growth of 3.9%, general government gross debt is forecast to fall to 151% of GDP by 2022. We expect primary surpluses to start declining below 3.5% of GDP (the ESM official target until 2022) from 2020.

The banking sector continues to face challenges. The key challenge is tackling non-performing exposures (NPEs), which remained stubbornly high at 50% of gross loans at end-September 2017. Greek banks have committed to ambitious plans to reduce NPEs by end-2019 and have achieved their interim targets. We expect asset quality to continue to improve, but we believe that execution risks are still significant.

Depositor confidence is gradually improving. Following a mixed start to 2017, private-sector deposits grew by €5.9 billion (5%) in the six months to end-December, reflecting reduced uncertainty after the completion of the second review of the ESM program and a strong tourism season. We expect deposit growth to continue as confidence in the banking system strengthens, although return of deposits will continue to be hampered by the high fiscal burden

Greek banks will be subject to a stress-test ahead of the conclusion of Greece’s economic adjustment program. Since the ECB Comprehensive Assessment (CA) in 2015, Greek banks have been recapitalized and have made progress on restructuring. The banks’ common equity Tier 1 capital ratios were on average more than 4 points higher at end-September 2017 than leading up to the CA, while the economic outlook for Greece is more positive.

Rating Sensitivities

Future developments that could, individually or collectively, result in positive rating action include:

-Track record of achieving further primary surpluses and greater confidence that the economic recovery will be sustained over time.
-Sizeable debt relief from the official sector that increases our confidence in medium-term public debt dynamics. Policy continuity after Greece’s exit from the ESM program, underpinned by an orderly working relationship between with official sector creditors and a stable political environment.
-Lower risks of crystallization of banking sector risks on the sovereign balance sheet.

The Outlook is Positive. Consequently, Fitch does not currently anticipate developments with a high likelihood of leading to a downgrade. However, future developments that could, individually or collectively, result in negative rating action include:

-A loosening of fiscal policy and/or a reversal of the policies legislated under the ESM program.
-Declining prospect of debt relief measures from the Eurogroup.
-Adverse developments in the banking sector increasing risks to the real economy and the public finances.

Key Assumptions

-Our base case assumes the fourth program review is completed without creating political and economic instability.

-Any debt relief given to Greece under the ESM program will apply to official sector debt only, and would not therefore constitute an event or default under the agency’s criteria. (Fitch 16.12)

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