IMF: High Interest Rates Impose Pressure on Banks in MENA Region

International Monetary Fund (IMF) Analysts suggested that the central banks in the countries of the Middle East, North Africa (MENA) and Pakistan continue to apply higher interest rates for a longer period, especially in economies that are witnessing a chronic rise in basic inflation levels (except for food and energy prices).

They said in a recent post on the IMF website, that the high interest rate environment, which recently caused pressure across the banking sectors in a number of advanced economies, warns of more regular risks.

They added that this environment could lead to tightening financial conditions, stirring a wave of credit pressure, and reducing the available funding for financial institutions, including in the MENA region and Pakistan.

These pressures may also threaten bank profits and their willingness to lend, which will have tangible implications for financial stability and economic growth.

They said that in light of the risks threatening financial stability, such as the great dependence on external financing, banks in a number of countries may become vulnerable to sudden transformations in the mood of investors.

In the two countries where the lending authorities possess a large share of the local sovereign debt, the elongation of the higher interest rates may lead to losses, especially in the event of a decline in the market value of these debts and the decrease in asset prices, according to the experts of the fund.