“The reality is, Africa is being ripped off big time,” African Development Bank president Donald Kaberuka told Reuters, a day after attending a meeting in London with other African representatives ahead of the G8 summit of rich countries on the “triple-T” agenda of trade, transparency and tax.

“Africa wants to grow itself out of poverty through trade and investment – part of doing so is to ensure there is transparency and sound governance in the natural resources sector.”

Britain hosts this year’s G8 summit, which takes place in Northern Ireland on Monday and Tuesday.

Britain has turned up the pressure on the other countries to clamp down on secretive money flows by pressing its overseas tax havens into a transparency deal and announcing new disclosure rules for British firms.

Kaberuka attended a lunch on Saturday to discuss the issues with British Deputy Prime Minister Nick Clegg, the presidents of Ghana, Guinea, Senegal, Somalia and Tanzania and the finance minister of Nigeria, all of which have energy or mining resources.

“It’s seen as a collective agenda, not just a G8 agenda, that we make sure everybody pays what is due,” Kaberuka said.

The Democratic Republic of Congo, for example, lost at least $1.36 billion in potential revenues between 2010 and 2012 due to cut-price sales of mining assets to offshore companies, according to a report from the Africa Progress Panel, led by former U.N. Secretary-General Kofi Annan.

Africa, and in particular sub-Saharan Africa, has been growing strongly in the past few years, a trend which Kaberuka said had been helped by the cancellation of debt to the poorest African countries at the 2005 G8 summit in Gleneagles, Scotland.

The AfDB forecasts growth in Africa at 4.8 percent this year, with sub-Saharan Africa – excluding South Africa – the fastest-growing region at 6.6 percent.

But aid to Africa from the developed world had been cut for the first time in 10 years and the continent needs to look for ways to make that money go further.

“It’s important we begin to use aid smartly,” Kaberuka said. He pointed to projects such as the AfDB’s planned infrastructure fund, designed to use donor funding along with African savings as a base for debt issuance to finance regional infrastructure projects.

The AfDB is looking for up to $50 billion to be issued using the financing vehicle, which Kaberuka hoped would gain a single-A credit rating.

Kaberuka also welcomed plans by the BRICS countries – Brazil, Russia, India, China and South Africa – to set up a BRICS development bank.

“It could be a good partner for us in terms of building infrastructure,” he said.

(Editing by Janet Lawrence)

Central banks from India to Turkey have acted this week to
stem currency losses, and on Thursday the Indonesian rupiah was
boosted by a surprise central bank rate hike.

Investors were unwinding short bets on the yen – which
surged nearly 2 percent to a 10-week high against the dollar
– and long positions on equities, shoving the Nikkei down
more than 6 percent.

Markets have been shaken by doubts over the next moves of
major central banks such as in Japan and the United States.

The benchmark MSCI emerging stock index slid 2
percent to 11-month lows but trimmed some of those losses to
trade 1 percent down on the day at 1500 GMT, helped by
stronger-than-expected data on U.S. retail sales. The index has
lost 11 percent this year.

Sovereign dollar bond spreads reached their lowest in a year
earlier on Thursday, before tightening five basis points to 339
bps over Treasuries.

Emerging assets are likely to stay under pressure, however,
at least until next week’s meeting of the Federal Reserve, which
could provide clarity on when it will scale back its bond-buying
plan.

“We are seeing an unwinding of carry trades in the FX space,
and that is impacting most emerging markets and especially
high-yield currencies,” said Murat Toprak, emerging markets
strategist at HSBC in London.

Carry trades involve borrowing in low-yielding currencies to
by assets in higher-yielding ones.

“The expectation had been of outflows from Japan towards the
emerging markets space but we are seeing the opposite,” Toprak
said.

New issues from emerging market borrowers have dried up to
one-tenth of normal levels this month, according to Thomson
Reuters data, as investor flight from high-yielding assets
pushes up borrowing costs.

“We are going to enter a period where external financing
conditions for emerging markets will become much tighter, much
more challenging,” said Neil Shearing, chief emerging market
economist at Capital Economics.

“That probably means weaker growth with it.”

DUMPING ASIA

Foreign investors dumped Asian stocks, pushing the Seoul
market to seven-month lows while Shanghai fell almost 4
percent and the Bangkok market lost 5.5 percent.

Emerging currencies also saw big losses, forcing several
central banks to wade in. The Indian rupee hit record lows
despite central bank action the previous session, while
Indonesia raised interest rates in a move seen as driven by the
need to defend the rupiah, which is at 3-1/2 year lows.

The currency losses are also linked to selling of local
currency debt, where yields on the main GBI-EM index are now at
6.18 percent, up a percentage point from early May levels.

Emerging European assets enjoyed a U.S. data-driven
turnaround, however. The Russian rouble rose 0.77 percent
and stocks edged off earlier one-year lows. The Polish
zloty gained 0.5 percent.

Turkish stocks fell 0.5 percent though the lira
firmed slightly on the back of a slightly calmer political
situation. The forint rallied 1 percent as markets
priced out further interest rate cuts.

Brazilian stocks gained 0.5 percent from the
previous day’s August 2011 lows, in line with a positive Wall
Street open, and Mexican stocks pulled off 11-month lows.

Emerging market assets have been hard-hit by expectations
the U.S. Federal Reserve will scale back quantitative easing,
encouraging money to return home to the United States, and by
lower growth in key commodity export market China.

The MSCI emerging markets index hit its lowest
since June 2012 early in the European trading session, before
trimming losses to trade 0.35 percent higher on the day.

Turkish markets stabilised slightly, gaining 2.2
percent after a recent sharp sell-off sparked by violent
protests that have tested Prime Minister Tayyip Erdogan’s
position and dented stocks by more than 20 percent since May 31.

“We have been very bearish (on emerging markets). Indeed, we
couldn’t find a single market we wanted in the emerging market
space, we would rather have cash,” said John-Paul Smith, global
emerging equities strategist at Deutsche.

“Ironically, the slowdown in China means U.S. bond yields
will be capped around this 2.2 percent level so our current
scare will probably blow over.”

Emerging sovereign debt spreads tightened 3 basis
points to 347 bps over U.S. Treasuries, after gapping out 20 bps
in the previous session, and widening more than 50 bps in the
past few weeks.

The cost of insuring Turkish debt against default in the
five-year credit default swap market eased from
recent 10-month highs, dropping 6 basis points to 177 bps,
according to Markit.

The lira rose to its highest since May 31,
rebounding after hitting end-2011 lows on Tuesday, partly buoyed
by signs from the central bank that it would not permit the
currency to weaken indefinitely.

Central bank Governor Erdem Basci said around $8 billion had
fled Turkish markets since the start of May and while the bank
would discuss an increase in the upper band of the interest rate
corridor at its meeting next week, he said he saw no need for
such a move at present.

Russian stocks rose 0.66 percent, helped by steadier
oil prices, after shares hit one-year lows in the previous
session.

CURRENCIES, FRONTIERS

The Indian rupee gained 0.7 percent, edging away from
an all-time low against the dollar, as India confirmed the
central bank stepped in to stabilise the currency on Tuesday.

The rupee and Indian bonds got a further boost after Fitch
upgraded India’s outlook to stable on its BBB- rating.

In central Europe, currencies were broadly firmer, with the
zloty rising 0.6 percent and inching further off the 11-month
lows it hit last week against the euro.

The forint firmed 0.4 percent off the previous session’s
six-week lows. Budapest markets were awaiting minutes
of the latest central bank meeting for clues about further
monetary easing.

Frontier markets Dubai, Abu Dhabi and Qatar soared after
MSCI said it would add United Arab Emirates and Qatar to its
emerging shares benchmark index in May 2014 and would
downgrade Greece from developed market status.

Abu Dhabi and Qatar stocks hit their highest
since September 2008, shortly after the collapse of Lehman
Brothers, and Dubai stocks rose 1.5 percent.

Turkey won a coveted second investment grade rating from
Moody’s in mid-May, a decision which swept Turkish bond yields
to record lows and stock markets to all-time peaks.

Now move on through an apparent change of policy by the U.S.
Federal Reserve and a spate of headline-grabbing anti-government
protests eliciting a harsh police response.

Turkish stocks have fallen some 20 percent in three
weeks – twice that of the main emerging market stock index it
remains a part of – and there has been a punitive 200 basis
point increase in Turkish borrowing costs.

Money has flown from the country, helped on its way by Prime
Minister Tayyip Erdogan’s vehement attacks on speculation in the
stock market – something Standard Bank’s Timothy Ash said set a
collision course with foreign investors.

So was Moody’s wrong to elevate Turkey to investment status
from junk? The answer lies to a large degree in what it is that
a rating is intended to show.

Debt ratings are designed to tell investors how likely it is
that borrowers will repay their debt. A lot of the criteria are
therefore focused on economic and budgetary factors. Other
issues such as political risk do, however, play a part.

“Some parts of Turkey look great, for instance inflation is
coming down, then on the other side of equation they have lots
of short-term funding and political instability,” said Steve
O’Hanlon, head of fixed income at ACPI Investment Managers.

“How do you capture all those things into the rating?”

Moody’s upgrade was based on Turkey’s low debt to GDP
ratio, robust growth and strengthening institutions. Ankara
underlined this on Tuesday by reporting that gross domestic
product grew 3 percent year on year in the first quarter,
exceeding expectations.

But there was little mention of political risk in the
Moody’s announcement.

In the face of the market turn around – which is also being
driven along with other markets by fears the Fed will pull the
plug on its dollar printing – the agency has defended itself.

It says the “current level of political and balance of
payment risks” were reflected in its Ba3 rating and stable
outlook. Another agency, Fitch, which upgraded Turkey to
investment grade in November 2012, said that the anti-government
protests were not a threat so far to the country’s rating.

“Political instability and lack of voice accountability is
ranked as a weakness in our sovereign rating of Turkey,” said
Paul Rawkins, director in Fitch’s sovereign ratings group.

Others note that even though Turkey was lifted to investment
grade it is on the lowest rung of that category. And other
countries have similar or higher ratings and domestic troubles
with opposition groups, including Russia and Bahrain.

Add to that the fact that few people could have predicted
the timing or vehemence of the anti-government protests or that
they would come just as the Fed is hinting it will wind down its
dollar-printing programme that has pumped up global assets.

TIMING IS EVERYTHING

But the timing of Moody’s decision – variously seen by
analysts as either too early or too late – nonetheless adds to
a long line of decisions by credit agencies that have sometimes
in retrospect seemed strange to governments and investors
through the recent credit and euro crisis.

“That’s very typical of rating agencies,” said Stephen Jen,
managing partner of hedge fund SLJ Macro Partners, of the
Turkish upgrade. “They can upgrade a country based on macro
variables and fundamentals but they are not as sensitive to
people. If people are angry, you can see a situation degenerate
very quickly.”

Ratings agencies were sharply criticised during the 2008/09
financial crisis for awarding top-notch grades to complex
sub-prime loan packages that became worthless when the crisis
broke.

They have since been lambasted for giving triple-A ratings
to countries such as Ireland, which ended up needing a bailout
from the European Union and International Monetary Fund.

Agencies also failed to flag the 1997 and 1998 Asian crisis
and when they slashed Indonesia, Korea and Thailand to junk
status once the problems were already full blown, they drew
criticism from policymakers for exacerbating the turmoil.

Regulators have tried to loosen the control which the
ratings agencies have on markets – new EU rules should make it
easier to sue the agencies if they are judged to have made
errors, such as in ranking the creditworthiness of debt.

But many other ambitious planned changes were ditched, and
the idea remains entrenched that a bond needs to have investment
grade ratings from two of the three major ratings agencies -
Moody’s, Standard & Poor’s and Fitch – for more cautious
investors to buy it.

Turkish markets, indeed, saw huge inflows this year on the
mere expectation of a second investment grade rating by Moody’s
following Fitch.

Credit default swap and bond markets were ranking Turkey
higher than other investment grade countries including
peripheral euro zone countries Italy and Spain. The stock market
rose around 20 percent in the four-month run up to the decision.

This race by investors to get a foothold in the country’s
markets left it vulnerable to a quick withdrawal of funds if
anything unexpected popped up.

Cue the Fed and the demonstrators in Taksim square.

Growth forecasts for the Andean country are likely to be
downgraded, with 4.4-4.5 percent a likely rate for 2013,
Mauricio Cardenas told Reuters editors and Reuters Television.

Future growth however could see an annual boost of two
percentage points, thanks to planned increases to infrastructure
spending and if peace talks with Marxist-led FARC rebels – due
to restart on Tuesday – succeed in ending half a century of
insurgency.

“We are going to make an announcement by the end of this
week of between 4.4 and 4.5 percent, we are revising our
projections a little downward,” he said of the growth forecast
which is currently at 4.8 percent.

The exact revision is dependent on economic data coming
through this week.

Falling commodity prices are an issue for Colombia, whose
main exports include oil, coal and coffee. The other worry is
Venezuela, which is facing shortages of basic goods from toilet
paper to wheat flour, raising fears of instability.

“Developments in Venezuela are very important to us – a
stable growing economy in Venezuela is very important from
Colombia’s perspective,” Cardenas said.

He added Colombia has been talking with Venezuelan ministers
about the possibility of offering food for oil, or food for
future oil reserves.

“We are very dependent on commodity prices, and whatever
happens to future oil prices,” Cardenas said.

The government was likely to keep a Brent crude oil
reference rate of around $100 a a barrel for budget purposes, he
said, not far below the current $104 level.

The U.S. shale gas revolution has also cut the United States
as an export destination for Colombia’s coal, he added.

INFRASTRUCTURE, PEACE

Colombia has a potential growth rate of between 4.5 and 4.8
percent, but ambitious infrastructure spending plans could add
around a percentage point to those estimates, Cardenas said.

The government plans to spend $20 billion on infrastructure
over the next 10 years, with most focus on roads, and is looking
for around $30 billion from the private sector, he said.

“Better infrastructure will add one percentage point to
growth, and the peace process another percentage point,”
Cardenas said, adding that the impact of the peace programme
could be felt quickly.

President Juan Manuel Santos has said he wants the talks
with FARC ended this year. The two sides last month reached
agreement on the critical issue of agrarian reform.

More than 100,000 people have died in the war which has
diverted billions of dollars from the economy.

Cardenas said that if peace with FARC were agreed: “There
will be more investment, there will be more projects, the
sectors that will benefit the most are agriculture and energy.”

(Additional reporting by Axel Threlfall; editing by Ron Askew)

The MSCI dollar-denominated Egypt index
jumped 4 percent last month, outperforming a 4 percent decline
in the broader MSCI emerging market index, of which
Egypt is a constituent alongside larger emerging economies such
as China, Brazil, Russia and India.

Concerns about policy and social unrest and the Islamist-led
government’s struggle to secure a $4.8 billion loan from the
IMF, which weighed on the market earlier in the year, have
eased.

The Egyptian pound, another source of investor anxiety, has
stabilised recently at record lows after falling sharply this
year, and appears to be avoiding a major devaluation.
Anti-government protests that have sometimes turned violent are
continuing, but have nonetheless become less frequent in recent
months.

Paul Clarke, who is managing a new Africa fund for
Ashburton, said Egypt was likely to have a large weight in the
fund.

“Some people consider it quite risky, but in line with
higher levels of risk, prices have come off, that could offer
value,” he said.

“We look at companies that are not as exposed to domestic
political issues or risks – we would probably end up with 20
percent of the portfolio in Egypt.”

Cairo stocks have rallied since early March but are
still down more than 2 percent this year, after soaring 51
percent last year, and are 25 percent below levels seen in
January 2011, before the ousting of president Hosni Mubarak.

Clarke did not name individual stocks, but a number of
investors have recommended companies such as Orascom
Construction and Orascom Telecom.

Orascom Telecom has hit 4-1/2 year highs recently on
takeover interest, while Orascom Construction has performed
steadily since the uprising that toppled Mubarak, and is the
subject of a takeover offer by its Dutch-listed parent.

Investors point to Egyptian companies’ expanding interests
overseas, including in fast-growing Africa, and to an
entrepreneurial culture and strong management teams.

Valuations for the MSCI Egypt index are at a low 7 times
earnings, according to Datastream, compared with the average for
MSCI emerging markets of around 10 times earnings, making
Egyptian stocks cheaper to buy.

CURRENCY CONCERNS EASE

Investors have on average scaled back their exposure to
Egypt in the past year, according to Lipper data.

The average of 621 global, emerging market or regional funds
which declared any Egypt exposure this year shows a 1.1 percent
allocation to the country, compared with 1.6 percent a year ago.

For some investors, the risks continue to outweigh the
opportunities.

Egypt’s top court ruled on Sunday that parliament’s Muslim
Brotherhood-led upper house was illegal but could stay on until
elections, a ruling which analysts said seemed likely to
irritate both sides of Egypt’s political divide.

Investors were also selling this week ahead of planned
protests on June 30, which marks the one-year anniversary of
President Mohammed Morsi taking office. Some are worried the
protests could get violent.

“Egypt has some interesting opportunities but both the
macroeconomic situation and the political/legislative situation
are highly uncertain and in many ways Egypt now resembles a
frontier rather than an emerging market,” said James Syme,
senior fund manager at JO Hambro Capital Management Group.

“It could have a place in a portfolio, but much further out
on the risk-reward spectrum.”

But Egypt, where foreign investors make up more than 40
percent of stock market activity, has attracted some big names.

Veteran emerging market investor Mark Mobius of Franklin
Templeton told Reuters late last year he was looking to add to
his Egypt position.

The country’s weighting in the Franklin Middle East and
North Africa (MENA) fund rose to 13 percent by the end of 2012,
from 6 percent at the end of March 2012.

Egypt’s weighting is also more than 4 percent in the
Templeton Frontier Markets Fund, which has grown so much that
Templeton said last week it was soft-closing it – limiting
investment to existing shareholders only.

Other investors who have increased their Egypt weightings
include ING and Silk Invest, according to Lipper.

The Egyptian pound has weakened by more than 11 percent this
year, hitting record lows against the dollar.

But a currency collapse that looked imminent at the end of
last year hasn’t happened, as the central bank has managed to
stabilise the pound by rationing dollars. Loans from Qatar,
Libya and Turkey have also helped.

“Inflationary pressures appear to have eased a little – we
suspect this largely reflects the stabilisation of the pound in
recent weeks,” analysts at Capital Economics said in a note.

“Social tensions have calmed in the past few weeks, with no
renewed bouts of large-scale civil unrest,” they said.

Andrew Brudenell, frontier fund manager at HSBC Asset
Management, is cautious on exposure to Egypt overall, but said
he liked companies such as Commercial International Bank
, which is trading at four-month highs.

“From the spring of 2012 to now, some of the quality
companies that we still like have been opportunities to add,” he
said. “We try to add when we think everyone has given up.”

(Additional reporting by Joel Dimmock and Sujata Rao in London
and Patrick Werr in Cairo; Editing by Susan Fenton)

Index compiler MSCI, which has $7 trillion in global assets
benchmarked against its indices, put Morocco on review for
downgrade to its frontier index last year, and makes its
decision on June 11.

Relegation from the emerging market index would reduce
foreign investor interest in Morocco, which is suffering from
the financial crisis in the euro zone, its biggest trading
partner.

It would also be a blow to the country’s pride as it invests
billions of dollars to maintain its reputation for relative
stability in the politically uncertain Middle East and North
Africa region.

“Morocco’s economy is suffering badly due to its close ties
with Europe, the market has been penalized with huge pressure on
earnings,” said Sebastien Henin, portfolio investor at The
National Investor in Dubai.

Some Casablanca-listed banking and real estate stocks were
hitting record lows as investors sold shares ahead of the MSCI
announcement, he said.

“If the country is taken out of the emerging market index,
expect the trackers of the index to leave. In an illiquid market
such as Morocco, you could have heavy selling.”

Liquidity, one of the key factors for inclusion in the MSCI
emerging market index, against which $1.4 trillion is
benchmarked, is dwindling.

Morocco’s overall stock market transactions volume, of which
foreign investors make up 28 percent, was 13.421 billion dirhams
($1.56 billion) in the first quarter, plunging 59 percent from
the fourth quarter of 2012. Compared with the first quarter of
last year, volume was down 8 percent, according to data from
bourse watchdog CDVM.

“It is almost impossible for an investor to make a big trade
without affecting the share price,” a local trader said.

Morocco’s free-float market cap, another main factor
influencing MSCI’s rankings, has lost almost a third since 2009,
falling to around 90 billion dirhams.

The Casablanca bourse’s benchmark MASI index has
dropped 14 percent since the MSCI said last June that Morocco
could be downgraded, and is trading at around 8,727 points,
close to its lowest levels in more than six years.

It has fallen 6 percent, including two sessions of downward
gaps – an opening level well below the previous day’s low -
since MSCI set the date of its review a few weeks ago.

Moroccan officials say they have been lobbying hard to
retain their place as an emerging market, including making
roadshow presentations.

“We have a short-term action plan promoting scenarios to
help Morocco have more liquidity,” Anass Alami, chief executive
of the government’s financial arm CDG, told Reuters on a visit
to London earlier this year.

“Long term there are (plans for) laws on short-selling which
will help liquidity.”

Investors have also been canvassed for their opinions on
MSCI’s review. MSCI is also considering an upgrade from frontier
status for Gulf economies Qatar and the United Arab Emirates.

Moroccan stocks make up less than 1 percent of the MSCI
emerging market index. One of the three constituents, Maroc
Telecom had its weight reduced by 50 percent last year
due to low liquidity.

A drop to frontier status would mean smaller amounts of
money would track Morocco, and investment banks would probably
assign fewer research analysts to the country.

But Casablanca boasts stronger local liquidity than other
frontier markets such as those in sub-Saharan Africa, according
to Luca del Conte, in capital markets sales at broker Exotix.

Valuations, while historically low by Moroccan standards,
are also above the average for frontier markets, according to
Datastream. (see link.reuters.com/sap48t for graphic)

Del Conte thought Morocco may hang onto emerging market
status for now, particularly given Taiwan and South Korea, for
example, have been on review for upgrade to developed market
status for years.

“Just like we have the annual Cannes film festival, we have
the annual MSCI review,” he said.

FRONTIER BOOM?

If MSCI does downgrade Morocco, some market watchers see a
silver lining.

Morocco would increase its weighting in its MSCI index from
less than 1 percent to as much as 10 percent.

And as valuations are historically low, the country could
benefit more from the current dash to high-yielding frontier
market assets, as developed market central banks around the
world stick with minimal interest rates.

“It would be sad to lose the MSCI’s rating as an emerging
market,” CDVM CEO Karim Hajji said, but added:

“It is not necessarily bad news – we can benefit from being
frontier market assets.”

When Israel moved the other way, with an upgrade to
developed market status in 2010, foreign investor flows
initially shrank to practically zero, as Israel’s weighting in
the index was so small.

If either UAE or Qatar made the leap to emerging market
status, that would leave a hole in the frontier index that
Morocco could go some way to fill.

UAE currently makes up 12 percent of the frontier index and
Qatar 15 percent, according to MSCI.

But Moroccan stocks may have to fall even further before
they attract investors back, with some expecting the
well-developed local fund industry will keep valuations high
relative to other markets in the region.

“Since MSCI’s plans last year to downgrade Morocco to the
frontier market index, there has been an outflow of funds from
international investors,” said Faid Al Said, head of investments
at ING Investment Management in Dubai.

“As a country, it’s an important market, but we’re staying
away, in wait for interesting valuations and entry levels.”
($1 = 8.5827 Moroccan dirhams)

(Additional reporting by Nadia Saleem in Dubai and Natsuko Waki
in London; Editing by Susan Fenton)

Paul Gamble, director in the sovereigns group at Fitch, told a briefing this week that the ratings gap has never been bigger and that:

If you look at the outlooks, it has the potential to widen further.

The energy exporters – Bahrain, Kuwait, Saudi Arabia, Abu Dhabi and Ras Al-Khaimah – all are rated investment grade by Fitch. Saudi Arabi’s rating has a positive outlook while the others have at least a stable outlook.  Of the energy importers, meanwhile, two are on negative outlook – Egypt and Tunisia – while Morocco, Israel and Lebanon are stable. Only Israel and Morocco are investment grade.

Many of these countries may be too dependent on their energy sectors. But most energy exporters have based their budget calculations on a low price for oil, giving them room for manoeuvre if oil prices do fall, Gamble says:

The buffers are huge …budgets (are) based on unrealistically low oil prices

So despite a huge social spending boost following the Arab Spring uprisings, most Gulf oil powers can still boast healthy surpluses – the Saudi surplus this year is estimated at over 7 percent while Kuwait’s will be a whopping 20 percent for the financial year that started in April, analysts polled by Reuters predict.

Bahrain has been more optimistic on the oil price, however, with a budget based on oil at $120 a barrel, Gamble said – oil is currently trading around $104.

Fitch is due to review Bahrain in the next couple of months, after affirming the country’s ratings last July. Gamble pointed out, however, that the country’s BBB rating was already the lowest among its energy-exporting peers.

Israel started producing gas this year but Gamble said the country would not gain fiscal revenues from production until 2016, while the country is not likely to start exporting before 2017, beyond the rating agency’s forecasting horizon.

In terms of growth and profit, the banking sectors in the CEE (central and eastern Europe) region continue to outperform their Western European counterparts.

Real loan growth in the region’s banks, which includes Russia and Ukraine, was 21.8 percent between 2010 and 2012, Raiffeisen says, while euro zone banks’ real loan growth was negative over the same period.

The IMF said something similar this month, pointing out that for the five largest banking groups in the region, their businesses in eastern Europe were substantially more profitable than those in the West.

That might go some way to explaining why banking stocks in emerging Europe have outperformed broader indices, in contrast to the euro zone where they have been underperforming.

But here’s the bad news – not everyone is repaying their loans. Both the IMF and Raiffeisen point to high levels of non-performing loans,  particularly in southeastern Europe. The NPL ratio in that region rose to 17.3 per cent in 2012, from 14.5 per cent in 2011, Raiffeisen says:

The high NPL ratios in Hungary and Slovenia still have a significant negative impact on the entire CE-region, overshadowing the stable or declining NPL ratios in the Czech and Slovak banking sector.

Erik Berglof, chief economist at the European Bank for Reconstruction and Development, which last week slashed its emerging Europe and North Africa growth forecasts, was also concerned. At the bank’s annual meeting this weekend in Istanbul, he said:

“We are watching some countries in southeastern Europe, Slovenia is also a part of this story and Ukraine and Moldova – there is not much reason for optimism.”

 

 

 

The European Central Bank and the International Monetary
Fund have also expressed concern about the reluctance of banks
to lend, so delaying a longed-for recovery in Europe.

EBRD president Suma Chakrabarti told a news conference
following the bank’s annual meeting that it was a question of:
“How to do more (for small and medium-sized enterprises) in a
way that maximises job impact and growth. What’s the right
balance … do we go through the banks more or do we do a more
direct approach?”

The bank slashed its 2013 growth forecast on Friday for its
emerging Europe and North Africa region by almost a percentage
point, to 2.2 percent.

The European Investment Bank, whose president took part in
panel discussions at the EBRD meeting, has also said it plans to
lend more to small business.

Banks across Europe have plenty of cash but are reluctant to
lend it on because of caution following the global financial
crisis, along with increased regulation.

“Liquidity of the banking sector is in good shape in
principle but the credit channels do not work in full capacity
because of the lack of demand with good quality from credible
borrowers,” Russian deputy finance minister Sergei Storchak told
reporters at the meeting.

“There is a huge structural problem.”

Direct lending has risen to fill the bank lending gap, but
this can also carry greater risks, Chakrabarti said, as lenders
need to be very familiar with their countries and sectors.

Non-performing loans (NPL) are also a growing concern, the
Bank’s chief economist Erik Berglof said.

“We are watching some countries in southeastern Europe,
Slovenia is also a part of this story and Ukraine and Moldova -
there is not much reason for optimism.”

A study published by Austrian bank Raiffeisen on Saturday
showed a rise in the NPL rate in southeastern Europe to 17.3
percent in 2012, from 14.5 percent in 2011.

The EBRD was set up to help former communist countries in
eastern Europe develop market economies and invests mainly in
the private sector. It lent nearly 9 billion euros last year.

Its countries of operation now include Turkey, host of this
year’s meeting, and more recently four countries affected by the
2011 Arab Spring – Egypt, Jordan, Morocco and Tunisia.

Loans to these four countries totalled 260 million euros so
far, Chakrabarti said.

Libya, which is not a member of the EBRD, was interested in
receiving technical assistance from the bank, Chakrabarti added.

Unlike other countries that went through Arab Spring
uprisings, Libya is rich because of its oil reserves and
accumulated oil earnings, which has helped its economy rebound.

But nearly two years after dictator Muammar Gaddafi was
overthrown, the cabinet and Libya’s official armed forces are so
weak that swathes of the oil-producing desert country remain
outside central government control.

(Editing by Mark Potter)