Dubai: Many frontier markets remain highly vulnerable — especially to oil price weakness — as fixed exchange rates and lack of policy capacity delayed the adjustment, according to analysts at Bank of America Merrill Lynch

“Most vulnerable among the 68 economies we cover are Bahrain (largest fiscal deficit), Oman, Tunisia, Mozambique (widest current account gap) and Belarus. Nigeria is still the strongest among the Sub-Saharan African markets with sovereign Eurobonds, owing to favourable stock indicators in external and public debt and low domestic private leverage,” said David Hauner, EEMEA Cross Asset Strategist at Bank of America Merrill Lynch.

Considering the latest weakness in crude prices, analysts said Bahrain, Gabon and Oman have on average the weakest fundamentals. Venezuela is the weakest among the big index weights. Russia is the oil exporter with the best fundamentals thanks to prudent fiscal policy in the good times and the front-loaded adjustment to the decline in crude prices during 2014-15. Kuwait remains the fundamentally strongest GCC market.

Omani government has recently implemented several measures to mobilise additional non-hydrocarbon revenues, including changes to income tax, new taxation of goods such as tobacco and alcohol, and changes to fees charged for hiring foreign workers. Beyond 2017, the fiscal deficits are expected to continue narrowing helped by gradual increase in oil prices and the introduction of value-added tax (VAT) in early 2018.

Bahrain’s GDP receded by 0.19 per cent quarter on quarter in the fourth quarter of 2016 and reached three billion Bahraini dinars by the end of the period. The decline was largely ascribed to the 8 per cent decline in oil sector GDP quarter on quarter, which constituted 11.4 per cent of the overall GDP of the country for the quarter, according to Central Bank of Bahrain. The oil sector GDP declined in the fourth quarter of 2016, but was up from the first quarter of 2016, as global oil prices recovered during the period. However, non-oil GDP increased by 0.9 per cent quarter on quarter in the fourth quarter of 2016,