The Middle East, led by troubled states such as Egypt and Lebanon, is expected to see private capital flows in the region drop to $56-billion in 2011 from $77-billion in 2010.
Capital inflows in the Middle East North Africa region will drop this year, as investors avoid the region's uncertain political and economic conditions.
"In the MENA region, we project economic uncertainty to result in a sharp retrenchment in flows. Relative to our January report, inflows to Egypt and Saudi Arabia are forecast to be some $17 and $15 billion lower this year, respectively," says an Institute of International Finance (IIF) report.
Egypt has suffered withdrawals of about $16 billion in private foreign capital following the political turmoil earlier in the year. Moreover, a sharp slump in tourism resulted in a deterioration of the current account deficit. These two losses have been financed by running down reserves. Official reserves fell by about $8 billion between December 2010 and April 2011, says the IIF.
The capital drain in the Middle East is in sharp contrast to increased inflows in other emerging markets.
After rising to $990-billion in 2010, private flows in emerging economies are expected to cross $1.04 trillion in 2011 and $1.06 billion ion 2012, with majority of the flows heading towards China and Brazil.
Of course, not every country in the region is expected to suffer. Oil-exporting countries are generally expected to see capital inflows into their economies.
In fact, the turmoil has shuffled capital flows considerably. While oil-exporting countries have seen their exports revenues rise, and while some portion is being used to launch large-scale projects, much of it is being refinanced back into the global economy.
A recent Morgan Stanley report estimates that up to $1-trillion petro-dollar assets will be looking to find a home over the next year.
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