Middle East and North Africa: Country Risk Ratings

Algeria

Algeria’s overall risk remains medium high. Since Abdelmadjid Tebboune assumed office in December 2019, a series of popular policies have been implemented, contributing to an enhancement of government and political stability. Notwithstanding, a number of challenges persist, making political violence a high risk. These factors include ongoing tensions with Morocco, power struggles in the lead-up to the presidential elections scheduled for December 2024, an accumulation of extensive power by the president’s advisors, posing a threat to democratic processes, and the imprisonment of the former Minister Delegate for Small Enterprises on corruption charges. In this context, despite various efforts to promote transparency, such as the recent introduction of a draft law outlining general rules governing public procurement, corruption prevails in the nation. Consequently, the legal and regulatory environment poses a high level of risk. Also a high risk is political interference. For instance, towards the end 2022, the government presented a draft law aimed at altering mechanisms concerning the prevention of conflicts at work and the right to strike. Furthermore, there have been reports indicating potential exaggeration of economic growth figures by government institutions to display inflated positive indicators. In line with this context, the risk of doing business is high. There are, however, other contributing factors to this assessment. Firstly, Russia and Algeria have come to an agreement to expand the involvement of Russian firms in the African nation, potentially posing a dilemma for new investments from Western firms. Secondly, competition is intensifying, given the robust presence of Chinese and Turkish companies. Thirdly, inherent structural issues, including corruption, black markets, and bureaucratic hurdles, present considerable challenges for business operations. Within the economic domain, the IMF expects Algeria to grow 3.8% and 3.1% in 2023 and 2024, respectively. In particular, nonhydrocarbon GDP growth is expected to counterweight the decline in oil production. Along this trajectory, the increase in gas prices and exports has supported the government finances position. To illustrate, the president, in a movement to maintain popular backing, prioritized wage hikes, unemployment allowances, and subsidies within the 2023 budget. As a result, the risk of the government’s inability to provide stimulus decreased from medium to medium low. Likewise, the sovereign non-payment risk decreased from medium high to medium. The revision is mostly explained by the significant progress achieved in narrowing its debt in 2022; however, the sizeable rise in the 2023 budget could reverse last year’s improvement. Additional concerns arise because financing needs might increase in the medium term resulting from wider fiscal deficits. This poses a threat to the financial sector, given the overreliance from the government to be financed by state-owned institutions. As a result, the banking sector vulnerability is medium. Lastly, the exchange transfer is a medium high risk. While the country enjoys of solid reserves levels (equivalent to 14.1 months of imports of goods and services for 2023 as per the IMF) and maintains a current account surplus (largely supported by hydrocarbon exports), Algeria remains relatively closed to external capital flows.

Egypt

Egypt remains a high risk on a country risk rating. The risk of political violence remains at a very high level. Though President Abdel Fattah el-Sisi is widely expected to be re-elected in the December 2023/January 2024 period, opposition remains and this could cause tensions into 2024.Part of this is the ongoing economic crisis in the country, where the most pressing problems remain high inflation (that is only slowly being brought under control) and high youth unemployment.External political conditions remain stable however, with the push across the Middle East to temper long standing disputes and focus on improving long-term growth and trade.On the economic front, Egypt continues the 46 month IMF package agreed in December 2022 and privatization have raised foreign currency this year.However, the external situation remains difficult with high inflation pressuring the currency to devalue after the election and capital inflows restrained by the lack of major structural reform, plus a reluctance of gulf countries to provide extra funding for Egypt.Sovereign non-payment is thus at medium-high, as is exchange transfer in light of these external problems.The lack of fiscal space, plus government focus on major reform, means that legal and regulatory risk measure remains at high, while the political interference measure is also at high.

Iraq

Iraq remains at a very high level of overall country risk, including one of the highest levels of political violence risk in the world.At first blush, the Mohammed Shia al-Sudani government, in power since October 2022, has seen some relative stability compared to the previous turbulence in Iraq since 2003.This has been achieved by a careful consensus of stakeholders within Iraq and also modest government policy moves that has rewarded key groups.However, June 2023 has seen the federal Supreme Court overrule the local Kurdish parliament on delaying elections, which raises the risk of violence.More importantly, the fractures in Iraqi society remain with widespread corruption, overreliance on fossil fuels and the rule of law still weak.Meanwhile, the Iraqi military remains dominated by ex-Shia militia groups that have a close relationship with Iran.Legal and regulatory risk, therefore, remains a very high risk. The risk of doing business is also a very high risk, due to antiquated commercial laws, outdated infrastructure, cumbersome visa procedures, lack of access to financing, poor business culture, and many other hurdles. Supply chain disruption also remains a very high risk, due to weak rule of law and lack of infrastructure (including chronic power cuts again this summer). Though the economy is set to see a small decline in GDP in 2023, the economic indicators are not as stressed due to the medium-term benefit of oil revenues.The 2023 shrinkage is a result of the OPEC+ production cuts that will likely be reversed in 2024.Indeed, the inability of the government to provide fiscal stimulus has fallen from medium to medium low, with the remainder of the 2020s likely to see fossil fuel boosting government revenues.Sovereign non-payment remains a medium-high risk, but is capped as high oil prices aid its fiscal position and a medium-term current-account surplus position.Currency pressures remain but are much less unstable and manageable for now. However, 61% of the economy in 2022 was due to fossil fuels, which is an economic challenge given the lack of progress in the non-oil sector and the need to uptake rebuilding after the war with IS. It could also have political fallout, if the surging youth population protest at the lack of momentum in job creation.

Jordan

Jordan’s overall risk level remain medium high. Abdullah II bin Al-Hussein continues to be king of Jordan, as Bisher Khasawneh remains prime minister of the country since 2020. Political violence, as well as legal & regulatory risk remain medium high. Corruption continues to exist in Jordan with corrupt public officials being rarely punished or prosecuted. There have been cases of unrest lately, such as the protest to show support to Gaza and Palestine. Thousands citizens of Jordan recently rallied near the Israeli embassy and the streets of Amman in solidarity with Palestine (a large part of the population are from Palestine). Supply chain disruption remains medium low however. On the economic front, Jordan reported a growth of 2.5% in 2023, and is expected to be around the same level in 2023 and 2024, according to the IMF. Jordan specializes in the production of clothing, but also chemical products. Inflation increased in 2022 to a CPI equal to 4.2% due to the Ukraine war, but is expected to decrease in 2023 to 2.7% and remain stable in the following years, with a 2024 projection of 2.6%. Interest rates have been increasing significantly by the central bank, with the current rate being 7.5%, compared to a 5.25% in September 2022. The current account deficit is projected to decline to 7.6% of GDP in 2023, but still remains wide according to the IMF.Consequently, sovereign non-payment remains medium high, with exchange transfer at a high risk rating.Jordan’s currency the Jordanian dinar is pegged to the US dollar at a fixed exchange rate, to achieve lower levels of fluctuations of the currency and attract foreign investment. The risk of doing business remains medium, as corruption, bureaucracy and unclear regulations make Jordan a challenging location for businesses. Banking sector vulnerability remains medium and the inability of government to provide fiscal stimulus remains high. 

Lebanon

Lebanon’s overall risk level remains high. Najib Mikati remains prime minister of Lebanon after being elected in September 2021. Political violence as well as legal & regulatory risk remain very high. The position of the president of the country continues to be vacant as the government has not managed to elect a new president. Terrorism, armed conflict and unrest are relatively common in Lebanon, with corruption being at high levels. For instance, in August, 2 people were killed during a shootout in the village of Kahaleh, between Hezbollah and Lebanese Forces. Hezbollah is a political party, but also a militant group, backed by Iran, which lost its majority in the 2022 elections, but remains a powerful militia force. Tensions between Israel and Hezbollah also remain very high. Supply chain disruption and political interference remain high in this volatile environment. Lebanon has also been suffering a chronic inflationary problem with a record CPI inflation of 171.2% in 2022, compared to 154.8% in 2021 and 84.9% in 2020. The Central Bank of Lebanon decided to devalue the exchange rate of the currency, the Lebanese pound, by 90%, as now 15,000 Lebanese pounds correspond to 1 US dollar, compared to the previous rate of 1,507.5 per 1 US dollar.Even so, the current account deficit continues to increase, with a reported -28.8%, of the total GDP in 2022. Sovereign non-payment remains high in this situation.The risk of doing business continues to be high, due to the great levels of corruption, macroeconomic crisis but also high taxes and fees.

Libya 

Libya’s overall risk rating remains very high.Though the past year has seen less violence and a standoff between Tripoli and Benghazi based forces, the underlying tension that caused the attempted overthrow of the Tripoli government in 2020 remains fresh.The flooding disaster in Derna in eastern Libya is unlikely to change this balance, as Khalifa Haftar autocratic grip on power remains supreme through the Libyan national army.While the focus is swinging towards reconstruction in Derna, the tension may not resurface.However, strong disagreement on a presidential poll, the link between a presidential poll and parliamentary elections, plus the issue of forming a new unified government make national elections unlikely.This can cause the standoff to be sustained, which could flare up at any time. Thus the risk of political violence remains very high, while economic activity is difficult in this environment and this means that supply chain disruption, political interference and risk of doing business measures also remain very high.The economic picture is less bleak, helped by the rebound in oil production that will likely power GDP growth to 12.5% in 2023.Though fossil fuels account for 95% of exports and government revenue, Libya can take advantage of a further recovery in production to 1.7mln barrels per day by 2027.This helps to cap the inability of government to provide fiscal stimulus and sovereign non-payment at medium-high, while also leaving banking sector vulnerability at medium.However, the dependence of the economy on oil becomes a risk into the 2030s, which would argue for wise government investment in the 2020s. 

Oman

Oman’s overall risk level remains medium. Haitham bin Tariq continues to be the Sultan of Oman, since January 2020, after the death of his cousin, who was his predecessor. Sultan Haitham, also head of Oman’s Vision 2040 initiative has been trying to make the country less dependent on oil and gas exports. Oman continues to suffer from social inequality, unemployment and poverty, despite efforts by the government to reduce them. Political violence as well as legal & regulatory risk and political interference remain medium. The judiciary system is managed by the Sultan, who is the one who will hire or remove any judicial officials. The crime and violence level in Oman tends to be significantly low, compared to the rest of the countries of the Middle East. Sultan Haitham, following the recent events in Israel and Gaza has urged both countries to show restraint, considering the lives of civilians. Supply chain disruption also remains medium low. Oman is projected to see moderate growth of 3.1% in 2023, according to the IMF, while inflation is under control with 1.7% expected for 2023. The economy continues to be highly dependent on the production of oil, which accounts for most of the country’s exports. Oman reported a positive current account balance in 2022 for the first time since 2014, at +3.2% of the GDP, compared to -4.9% in 2021 and is forecasted to continue to have a surplus in 2023 and beyond according to the IMF. This external situation means that the sovereign non-payment remains medium but exchange transfer decreases from medium to medium low. In September, the minister of Commerce, Industry, and Investment Promotion, Qais bin Mohammed Al-Yousef met with UK’s business minister Nigel Huddleston to discuss about an increase of trade and investments between the two countries, as part of the push to diversify exports. 

Syria 

Syria remains a very-high risk on a country risk rating. The ongoing airstrikes and conflict in the north mean that the risk of political violence is a very high risk.Some of these airstrikes have taken place in the areas most impacted by February’s devastating earthquake and shows the fragmentation caused by the civil war. The Syrian army controls most of Syria with little indication that they will lose ground over the next quarter, but opposition forces still holding out in the North. Bashar al-Assas is secure in his presidential position and expected to continue, with Syria being readmitted to the Arab League.Military experts do not see this being resolved quickly.Additionally, economic protests over the cost of living crisis have broken out in government controlled south Syria region of Suweida, which the government does not have the fiscal space to relieve by increased expenditure.Combined with corruption, the ongoing hostilities and fragmentation this keeps the risk of doing business, political interference and legal and regulatory risk measures all at very high.Syria's exchange transfer is at high, as the Central Bank of Syria has devalued the official exchange rate significantly during 2023 and super high inflation means that this process is not slowing.Its current-account and budget deficits also damage Syria’s ability to meet its requirements, with its government currently in default.Funds from Arab League members are possible, but uncertain in the future.