Country Risk in MENA

Egypt (EGY)

Egypt’s overall risk level remains high. Political violence remains very high, with political interference and legal & regulatory risk at high. The cost of living crisis continues to risk protests against high inflation and unemployment, and the government continues to remain wary of civil unrest.  Additionally, the war in Gaza is hurting the economy via lower tourism and less ships passing through the Suez Canal.  Geopolitically, the war in southern Gaza also still risks a refugee crisis, which Egypt wants to avoid for many reasons.  Egypt is reluctant to scrap the Camp David deal with Israel however, but could increase pressure on Israel in the coming months to end the war in Gaza. However, Egypt also wants to avoid domestic protests about Gaza, which could backfire and become protests about the regime. The return of Donald Trump as president will be welcomed by Egypt’s Sisi given the previous good working relationship between 2016-20.  Meanwhile, the extra USD 5 bln agreed with the IMF has been followed by the needed devaluation of the Egyptian pound, plus promises of fiscal tightening and structural reforms. The Egyptian Pound has stabilised after the 62% March devaluation, while the central bank has set the policy rate to 27.25%. Growth is projected to pick up in 2025. Much depends on getting inflation down to single digits eventually, but this will not be achieved in 2024 and 2025, with the IMF now forecasting 33.3% and 21.4% for the two years, respectively. The currency problems are now secondary, as the World Bank has also committed USD 6 bln and European Union, USD 8 bln; while Saudi Arabia is expected to buy real estate, though perhaps not on the huge scale of UAE’s USD 35bln mega investment on the Mediterranean coast.  President Sisi’s bias towards mega projects and need for support from the army also suggests that multi-year fiscal consolidation will likely disappoint.  However, the external funding not only helps the currency, but also allows smooth sovereign debt payments. Sovereign non-payment risk is at high. The government debt/GDP ratio is forecast to drop to 84.5% in 2025 and is then projected to come under better control. The risk of doing business is medium high and the inability of government to provide fiscal stimulus remain at high.

Kuwait (KWT)

Kuwait’s overall risk rating remains at medium. After the April elections, Emir Mishal decided to dissolve the parliament and suspend parts of the constitution for up to four years. This is a worsening of the power struggle between the ruling Al Sabah family and parts of the judicial and legislative branches due to long-running disagreements over debts, stateless people and redrawing of electoral boundaries. Kuwait’s is now moving towards some long overdue structural reforms, though faces pressure from the IMF to do more and the economy remains very reliant on fossil fuels.  GDP is set to fall 3.2% in 2024 (lower oil prices and production quotas) before rebounding to +2.8% in 2025 on a reversal of the production cuts.  The political violence measure also remains at medium, though with no current signs suggesting that the ongoing power struggle could escalate into a more volatile or violent situation.  The support for the overall risk rating comes from oil exports helping government revenues and a current account surplus around 24% of GDP for 2025. This means that sovereign non-payment risk is at medium-low, while banking sector vulnerabilities are also at medium-low.  Kuwait has also come under criticism from FATF for not doing enough to investigate and prosecute money laundering and terrorist financing.

Lebanon (LBN)

Lebanon’s overall risk is high. This reflects the current situation as war rages on in the Middle-East. Political violence and legal & regulatory risk are both very high. Najib Mikati remains as Prime Minister but they currently remain without a president since 2022. The US have signalled their support for the election of a new president but continues to be held back due to the presence of Hezbollah supported by much of the Shia population in the country and back by Iran. After Hamas’ October 7 2022 attack on Israel which sparked the war in Gaza, conflict broke out again between Israel and Lebanon-based Hezbollah. September saw an unprecedented pager attack in Beirut which sparked widespread panic in Beirut and a response by Hezbollah. This has caused a major escalation in the war and Israel have moved troops into southern Lebanon in a ground operation and have struck Beirut in multiple relentless air strikes for the first time since 2006. Israel has targeted Hezbollah leadership and killed Hezbollah leader Hassan Nasrallah in air strikes, a new leader has been appointed as the group vow to fight ‘’until victory is achieved’’. The conflict has led to thousands of deaths, much destruction in Beirut and lots of displacement. Much of the international community such as the US, UK and EU had been calling for a ceasefire and November 27 saw a 60 day US-brokered ceasefire come into effect in which Israel will withdraw troops over the period to be replaced by the Lebanese army. The previously growing tourism sector has halted and both private consumption and investment has been hurt due to the security concerns. Inflation is a massive cause for concern in the Lebanese economy. Average prices rose 221.3% in 2023 according to the IMF and despite being on the downward trajectory, price rises continue to stunt economic confidence and worsens the problem of poor access to essential goods. High supply chain disruption, a depreciating Lebanese pound, poor monetary policy causing a liquidity crisis and increased taxes on imports have all worsened the issue. This uncertainty is making finance extremely difficult to raise as the inability of the government to provide fiscal stimulus remains very high. Their long-defaulted Eurobonds remain distressed and Lebanon have failed to make the political and social reforms necessary to receive sufficient aid and allow them to work with the IMF and creditors to come to a debt restructuring agreement. Exchange transfer is high whereas sovereign non-payment risk is down to medium high and banking sector vulnerability remains very high.

Morocco (MAR)

Morocco’s overall risk remains medium. Aziz Akhannouch remains PM after his narrow 2021 election victory. Political violence and legal & regulatory risk are both medium high. Tensions persist with Algeria over the Western Sub Sahara region. France have recognised Morocco’s sovereignty over an area that Morocco has long wished the international community recognise as theirs. This has increased tensions between Morocco and Algeria. Despite past tensions, Paris and Rabat are looking to work more closely. The President of France Emmanuel Macron visited Morocco in October to extend ties and sign various business deals including Morocco’s decision to buy high speed trains from the French company Alstom. The US, Spain and other Arab and African countries have already recognised Morocco’s sovereignty in the area which has significant natural resource potential. According to the IMF, real GDP has grown 2.8% in 2024 and projects 3.6% in 2025. The Moroccan economy has remained resilient in the face of international crisis such as the pandemic and earthquakes in the country. 2023’s Marakkesh-Safi earthquakes reportedly killed 2,960 and injured many more. Morocco’s economy is very diverse from being a major export hub of cars to the EU to a strong tourist sector. The economy also has significant phosphate mining and fossil fuels potential. The government has also announced its desire to invest more in the renewable sector allowing the country to become more climate risk averse and develop key infrastructure. The risk of doing business is medium low, reflecting strong business and consumer confidence. Inflation is stable and expected to be 2.3% in 2025 after a 1.7% average price rise in 2024. Morocco is benefiting from aid from the IMF and other international bodies to help the county be more resilient to climate shocks and invest more in improving infrastructure like the electricity grid. Government debt to GDP is expected to fall marginally from 68.7% of GDP in 2024 to 68% in 2025. Though Morocco is aiming to get debt to pre-COVID levels, with the help of tax reforms and more targeted subsidies, they have been halted in their mission by the effects of the earthquake. Floods, droughts and natural disasters are becoming more of a threat to Morocco as the climate crisis worsens in North Africa. Supply chain disruption remains at a medium level.

Oman (OMN)

Oman’s overall risk level remains at medium. Sultan Haitham bin Tariq Al Said remains head of state as he has done since the death of his cousin Sultan Qaboos in 2020. Despite an attack in July where Islamist jihadist group, Isis, claimed responsibility for a shooting at a mosque in Muscat, that killed 6 people and injured many others, political violence and legal & regulatory risk are at a medium level. It was the first ever attack by the jihadist group in Oman. Another risk associated with Oman is geopolitical issues. There is a regional conflict in the Middle East and in neighbouring Yemen. However, the rest of the political scene is likely to remain calm, with the Gulf state not directly involved in the conflict but have acted as facilitator of talks between the US and Iran as Foreign Minister Badr Albusaidi has pushed the West to slow down Israeli support to help bring about a plan for a ceasefire. Oman continues to have positive relations with neighbours such as Iran and Saudi Arabia as well as with the West. Oman’s remains oil dependent economy, which the IMF believe will grow at 1.0% in 2024 and 3.1% in 2025. Oil reserves will support short term growth but they are being slowly depleted and Oman are making an effort to diversify to be able to transition into a future without the dependency on the oil and natural gas sector to provide income. Infrastructure and transport projects to connect Oman with the rest of Gulf and more emphasis on tourism and other sectors to provide income are at the heart of their Vision 2040 project, which aims to modernise the Omani economy and make it less reliant on oil and natural gas production. In addition, there are continued efforts for the pursuit for the policy of ‘Omanization’ which is trying to get Omani locals to become more prominent in key positions in the labour market, with the 2023 labour reforms providing more incentives for companies to take on Omanis and not foreign expats.  Oil and gas exports will keep the current account in surplus in the short and medium term with the estimating 2024’s surplus at 2.3% and 2025’s at 1.4%. Debt is once again under control from 2020’s high of 67.9% of GDP, with the IMF projecting government debt at 34.1% of the economy for 2024 and 33.6% for 2025, continuing the downward trajectory with fiscal consolidation measures such as the introduction of a new income tax set to boost public finances, with higher rates set for expatriates compared to Omani nationals. As a result, the inability of the government to provide fiscal stimulus is at a medium low level and sovereign non-payment risk is medium. The Omani Rial (OMR) remains pegged against the USD at OMR 0.38 to 1 USD. This should help keep prices stable with IMF anticipating 1.3% inflation in 2024 and 1.5% in 2025. Exchange transfer risk is at a medium low level.

West Bank/Gaza (PSE)

Reports suggest that president elect Trump is keen to see the Gaza war end by January, after the agreed ceasefire between Israel and Hezbollah. This could lead to a ceasefire to try and return Israeli hostages, but is not a precursor to two state solution talks.  Israeli opposition to a two-state solution has increased since the start of the Gaza war and the Trump administration will likely be more focused about extending the number of countries covered by Abraham type accords – though this could be difficult given the intensity of feeling over the wars in the region.  The Trump administration will also be keen to put maximum political and economic pressure on Iran, but it is unclear whether it will allow Israel to attack Iran nuclear facilities. Mike Huckabee nomination as U.S. ambassador to Israel also backs a more pro-Israel stance from the U.S.  Israel’s previous plan for Gaza was for a demilitarized zone with continued Israeli military presence indefinitely and non-hostile Palestinians to run Gaza. Even if Israel PM Netanyahu is replaced, the broad thrust of this plan will likely remain from Israel’s standpoint.  The West Bank also continues to see violence between Israeli settlers and Palestinians, which is causing an unstable security and economic environment in the West Bank. The U.S./UK has increased sanctions against a limited number of violent Israeli settlers, which is hurting business sentiment due to fears it will stop bank funding to the West Bank. All of this means that the West Bank and Gaza risk rating at high could worsen in the coming quarters, given the surge in political violence; collapse of the Gaza economy; political flux in Gaza and West Bank; uncertainty of the post-war political environment and reconstruction; and difficulty of managing the West Bank economy and finances.     

Yemen (YEM)

Yemen’s overall risk remains very high. Rashad Muhammad al-Alimi leads the country acting as chairman of the Presidential leadership council since 2022. Political violence, political interference and legal & regulatory risk are all deemed very high. The job of the council is to negotiate with Houthis to bring about the end of civil war with a permanent ceasefire with the Houthis group who have controlled the north of the country since 2015. The war in the Middle-East is halting any progress as Houthis, who are backed by Iran, have been responsible for drone and missile attacks in Tel-Aviv this year, resulting in an Israeli response. In addition, attacks on shipping and US naval vessels in the Red Sea persists. For instance, in August, Houthi’s fighters attacked a 274 metre ship containing 150,000 tonnes of crude oil. These attacks have triggered western response as the US struck 15 Houthis targets in Yemen in October. Houthis attacks have extended on shipping to the wider Indian Ocean and have significantly interrupted international shipping in recent times as boats have taken longer routes on approach to the Suez Canal to avoid attacks from Houthis. Tensions continue as insecurity worsens in the Middle East region and threats of a continued Western response which is likely to cause more loss of life and damage to Yemen. Meanwhile, though the internal truce has reduced conflict within the country, a peace deal is still need to completely end the fighting and the adverse spill over to the economy. As for the economy, growth is set to be negative once again -1% this year and 1.5% growth is forecast by the IMF for 2025. The conflict is making Yemen one of the poorest countries in the region as high poverty levels and food shortages persist alongside the disruptions with humanitarian assistance. It is believed 17 million people in Yemen face food shortages and 18 million lack access to clean drinking water, according to the World Bank. A situation made more precarious with consequent disease outbreaks like cholera. Crude oil exports are blocked damaging the economy and the value of Yemeni Rial. Inflation is set to be 20.7% for 2025 and the current account deficit will continue to widen as long as the conflict persists and crude oil exports are blocked. Exchange risk is thus at a high level. A ceasefire deal could spark a strong economic recovery but remains unlikely in the short term despite hope of Middle East de-escalation after President Trump’s victory in the US election. Supply chain disruption remains also very high with a divided country vulnerable to difficult weather conditions as well as the ongoing conflict issues. The risk of doing business also remains very high.

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