BNY Mellon's Geoff Yu has flagged significant portfolio outflows from Middle East and North Africa (MENA) markets, warning that external funding gaps are likely to widen in the near term. According to custody data, these outflows are generating risk aversion and increasing the risk premium required to attract new portfolio inflows, particularly from a balance-of-payments perspective [1]. Oil-exporting economies in the region are facing weaker export earnings and inflexible exchange rates, which necessitate a substantial near-term discount based on cashflows alone. Meanwhile, non-oil economies are contending with higher import costs and structural current account deficits, with concerns that more downstream products will further aggregate these deficits [1].
Despite these pressures, Yu cautions against drawing direct comparisons with the 2022-2023 period, noting that retrenching domestic demand—especially fiscal—over several quarters has helped alleviate some financial stress from the drop in funding. Egypt, identified as a key frontier market, has implemented reforms including changes in exchange rate formation, which have stabilized expectations and ensured a high starting point for real rates. As a result, on a 12-month rolling basis, Egypt's local asset markets have generated a significant buffer to limit balance-of-payments risks for now [1].
Looking ahead, BNY Mellon expects funding gaps to remain large in the near term but asserts that these levels are not insurmountable, provided there is appropriate fiscal and monetary policy execution [1].
CONCLUSION
MENA markets are experiencing notable portfolio outflows and widening funding gaps, especially among oil exporters and non-oil economies facing structural deficits. However, retrenching domestic demand and reforms in Egypt offer some buffers, and BNY Mellon believes the challenges are manageable with effective policy action. The market sentiment is cautious, but not alarmist, with medium impact expected.