Country Risk in MENA

Bahrain (BHR)

Bahrain’s overall risk remain at a medium level. Salman bin Hamad Al-Khalifa remains Crown Prince and Head of Government. Political interference and legal & regulatory risk are both medium. There remain tensions between the majority Shia population and minority Sunni population. The Shia population continue to feel economically and socially marginalised in Bahrain in healthcare and in the labour market. In terms of risk in the Middle East region, Bahrain continues to keep themselves out of the picture but there may be pressure to better relation in the region due to US and Israel ties and Bahrain’s place in the US military coalition, the ‘’multinational security initiative’’. 3.2% growth is forecast by the IMF for 2025 and 2.9% for 2026. The economy will be boosted by the Central Bank of Bahrain’s policy easing cycle after a 25bps cut to the policy rate from 5.25% to 5% in December as inflation eases to 1.8% this year, according to the IMF. Rate cuts have largely been in line with the Fed’s cycle as the Bahraini dinar remains pegged to the USD. Oil and hydrocarbon production will remain a massive supporter to growth and efforts to diversify away from oil and LNG in the long run are underway in their national ‘Vision 2030’- aided by a USD5 billion investment from the Saudi Arabia sovereign wealth fund. The Bapco Modernization Programme (BMP) has also begun in Bahrain in what has been touted as ‘the largest strategic project ever undertaken in the history of Bahrain’. The BMP is set to expand oil refinery capacity to new heights at 400,000 barrels a day. The big issue for Bahrain remains elevated government debt expected to hit 129.8% of GDP this year and 132.3% next. Sovereign non-payment risk is thus medium high. Bahrain continues to rely heavily on partners in the region such as Saudi Arabia and the UAE for finance and to help manage high public debt. As part of ‘Vision 2030’- they aim to cut public spending particularly as hydrocarbon revenues have been falling. However, Bahrain have introduced a tourism tax and a corporation tax of 15% on non-oil industries for multinationals to boost income. There is also an additional threat for Bahrain which comes in the aluminium industry. Aluminium is Bahrain’s second biggest export and with the new US administration 25% steel and aluminium tariff set to be implemented, Bahrain will feel its impacts. The US are the third biggest recipient of Bahrain exports with the majority being aluminium. The current account surplus is still projected to continue at 4.5% of GDP for 2025 and 4.3% for 2026 with solid FDI and trade surpluses. Exchange transfer risk and the risk of doing business remain at a medium low.

Egypt (EGY)

Egypt’s overall risk level remains high. Political violence remains very high, with political interference and legal & regulatory risk at high. The government is apprehensive that the fall of the Assad regime could cause instability in other countries including Egypt.  The cost-of-living crisis also continues to risk protests against high inflation and unemployment. Meanwhile, President Trump’s plans for a forcible removal of Palestinians from Gaza has also caused protests, while the government has threatened to break decade old relations with Israel if it actually occurred.  Egypt and Arab countries alternative plan to rebuild Gaza with safe zones for the population in Gaza will likely be pushed as an alternative to avoid too much backlash from Trump; try to engage Israel and build international pressure to stop Trump’s plan.  Meanwhile, the financial situation for Egypt remains better, despite the adverse effect of the Gaza war on revenue from the Suez Canal and tourism. The IMF remain supportive of Egypt, with a focus on the broad thrust of privatisations and subsidy reduction rather than meeting every detail of the IMF program.  President Sisi’s bias towards mega projects and need for support from the army also suggests that multi-year fiscal consolidation will likely disappoint. Even so, Egypt also enjoys good multi-year funding projects helped by EU/World Bank programs and the huge USD35bln UAE investment to build a big tourist city on the Mediterranean coast.  This has all helped to stabilize the Egyptian Pound versus the USD in recent months. All of this points to a cyclical rebound in Egypt’s economy, with the IMF forecasting 4.1% growth in 2025.  However, inflation is projected to only slow to 21.2% in 2025, which is still too high for the domestic economy and will at some stage require a crawling depreciation to avoid the real exchange rate become overvalued – the current account deficit is projected to remain high at 6.4% of GDP. However, the external funding improvement not only helps the currency, but also allows smooth sovereign debt payments. Sovereign non-payment risk is at high. The risk of doing business is medium high and the inability of government to provide fiscal stimulus remains at high.

Iran (IRN)

Iran has a very high overall risk level.  The risk of political violence is high, while political interference remains very high. Protests against the cost of living/corruption crisis on February 11 follow many years of wages lagging high inflation, which is causing more Iranians to struggle to buy essential goods.  The risk of further protests into the spring remains high and this could challenge the authorities to make changes to the way that the economy works.  However, most political analysts feel that the police and military are still strong enough that this pressure will stop short of regime change. The pressure on the authorities is also being intensified by President Trump reapplying maximum pressure via renewed sanctions – which has accelerated the Iran Rial’s decline. Reports suggest Iran authorities differ on whether to negotiate with the U.S. or not over a new arms deal.  Meanwhile, Iran is in a period of inward reflection, after Hezbollah losses in Lebanon and the collapse of the Assad regime in Syria – public unrest is also being fuelled by reports that USD50bln on loans to Syria will never be repaid. Iran also does not want a war with Israel.  On the economic front, the Iranian economy continues to struggle due to sanctions and geopolitical tensions. Annual inflation is projected by the IMF to remain high at 29.5% in 2025. Until inflation comes down, it will make it difficult to achieve close to 3% GDP growth and also remain a cause of political instability.  With high political interference to control reoccurring protests, legal and regulatory risk remain very high and the risk of doing business is also at high.

Iraq (IRQ)

Iraq remains at a very high level of overall country risk, including a very high level of political violence. Though the Mohammed Shia al-Sudani government has seen some relative stability since 2023 compared to the previous turbulence in Iraq since 2003, the government still does not control Iran backed militias.  Additionally, society continues to be restrained by widespread corruption and the rule of law remaining weak. The main challenge is Syria and Iraq.  So far, in Syria the transfer of power has been orderly since the fall of the Assad regime, though Iraq still remains wary of security instability spilling over from Syria.  Meanwhile, Iran is weak after Hezbollah’s losses and Assad fall, which is an opportunity to build on domestic stability in Iraq but also a challenge if the U.S. puts too much pressure on Iraq to crackdown on Iran backed militia – Iran/Iraq relationship is complex. Legal and regulatory risk, supply chain disruption and the risk of doing business also remain at very high ratings against this backdrop.  GDP growth is set to rebound to around 4.1% in 2025 due to a better oil market outlook, with inflation under relative control at 3.5% in 2025. Iraq has also been trying to improve economic relations and has recently signed a GBP12bln trade and investment deal with the UK, plus an MOU with Morocco. However, the ongoing current account deficit (due to overspending on imports), means that the currency remains under some downward pressure. This means exchange transfer risk remains at medium rating.  Sovereign non-payment risk remains at medium-high, both due to too high fiscal spending, caused by elite interests, and the current account deficit.

Jordan (JOR)

Jordan’s overall risk remains medium high. King Abdullah II remains Head of State. Political interference remains high and legal & regulatory risk medium high. War in the Middle East continues to impact Jordan. Jordan have condemned the war between Israel and Hamas and continue to prioritise their own safety. Sentiment remains tense due to the fragility of the ceasefire deal and the future uncertainty. The majority of the Jordan population are of Palestinian-origin. As the new US administration have come in and try to navigate the future of the Middle East beyond the ceasefire deal, President Trump has put pressure on Jordan alongside Egypt to take in Palestinians from Gaza in his rebuild plan. King Abdullah met President Trump at the White House in February. Despite Jordan being opposed to the plan, the US have occasionally threatened to withdraw USD1.7 billion worth of support and military assistance, a sum which the fragile Jordan economy relies on. In addition, Jordan is close to agreeing a multi-billion euro deal with the EU over cooperation over halting migration into the bloc. In terms of the economy, 2.9% growth is forecast for 2025 and 3% for 2026. The economy has inevitably suffered due to the tensions in the Middle East with low consumer and business sentiment and falling tourism. In addition, the Central Bank of Jordan are expected to keep easing the policy rate as the inflation backdrop improves with the IMF forecasting 2.4% for 2025 and 2.5% for 2026 and alongside the start of the Fed’s easing cycle as the Jordan Dinar remains pegged to the USD. Meanwhile, Jordan will be a big recipient of FDI from the Gulf States such as the UAE and Saudi Arabia. The UAE are set to invest USD2.3 billion on a railway connecting the port of Aqaba and mines of Al-Shidiyah and Ghor Al-Safi. However, Jordan’s economy remains frail with the unemployment rate reaching 21.4% in 2024, high debt and the heightening climate threat. Government debt to GDP will reach 89.2% this year and 86% in 2026. There remains levels of corruption and tax evasion issues. Fiscal consolidation is required through cuts to public expenditure. The inability of the government to provide fiscal stimulus and sovereign non-payment remains medium high. Furthermore, a -4% current account deficit is expected for this year as exchange transfer risk remains medium high. Jordan will continue to rely on external financing and support from the international partners and the IMF who have made available support for Jordan under its USD1.2 billion 4-year program. Jordan are one of the most vulnerable countries to droughts, putting pressure on natural resources, agriculture as well as energy and utility systems. The risk of doing business is now medium.

Qatar (QAT)

Qatar’s overall risk remains medium low. The emir of the country remains as Tamin bin Hamad Al Thani, who has reigned since 2013. Political interference is medium and legal & regulatory risk medium low. Qatar’s diplomatic ties remain strong and balanced with international partners such as the US, Israel, Egypt and Iran. Qatar, alongside the US and Egypt have acted as a mediator in the conflict between Israel and Hamas helping to bring about a ceasefire deal and the release of the hostages. This role of mediator is expected to continue despite challenges since the conflict commenced. Qatar was also welcomed to the UK in December for a state visit and have just recently committed to investing USD10 billion to India across various sectors, highlighting their long-reaching, balanced ties despite human rights concerns in the country. 1.9% growth is forecast for 2025 and 5.8% growth is forecast for 2026 by the IMF, with a recovery in the ever-prominent hydrocarbon sector. This will be boosted by the expansion plans to the world’s largest natural gas North Field which is shared with Iran which is set to double output by 2030. 1.4% inflation expected for this year, coupled with the Qatar’s central bank beginning their monetary easing cycle at the end of 2024 aligned with the Fed as the Qatari Riyal remains pegged to the USD.  Private consumption and investment are then expected to be boosted. The current account will remain in surplus in the coming years with strong hydrocarbon revenue and boosts in tourism seen. However, geopolitical tension is putting pressure on Qatari gas exports through the Hormuz Strait. The IMF forecast 40.2% government debt to GDP in 2025 and 38.9% in 2026. Thus, sovereign non-payment is medium low and exchange transfer risk low, relieving the pressure onto Qatar to introduce taxation measures to raise revenue. Efforts to diversify are fast-moving with plans to launch a 2036 Olympic Games bid and tourism projects in their National 2030 vision with tourism one key strategy in this program. Qatar aims to welcome 6 million visitors by 2030. Their efforts to diversity have been particularly seen in the issuance of a milestone USD2.5 billion green bond last year which commits to fund environmentally friendly projects. In addition, they continue to put forward the policy of prioritizing Qatari nationals in the labour market over expatriate workers, emphasising the national vision to become more self-dependent and sustainable into the future years. The risk of doing business remains medium low and banking sector vulnerability medium.

Syria (SYR)

Overall risk in Syria remains very high, along with political interference and violence. December saw the Assad regime toppled by Sunni Islamist rebels who advanced through Syria eventually causing the end of decades of Assad control in Syria and after 13 years of civil war since the Arab Springs uprising.  This had devastated the Syrian economy and led to the displacement of 14 million as well as massive division in the country. The rebel advances were led by now head of the transitional government, Ahmed al-Sharaa. There remains many unanswered questions and mixed feelings amongst the international community. Bashar al-Assad has fled to his allies in Moscow, reflecting Assad ties with Moscow and the now loss of a foothold for Putin in the Middle East. The US continue to fight in Syria with fears of an IS resurgence off the back of the regime fall and the US, UN and EU will be hesitant of the prospect of Syria being ruled by an Islamist militant group. In addition, despite the new administration’s lack of interest in conflict with Israel, air strikes have continued since the regime fell with Hezbollah presence in the country. But, al-Sharaa’s desire to rebuild Syria has led to the start of their national dialogue to help pave the way for the rebuild in the attempt to shake off Western sanctions from the Assad era and construct a path to elections expected in 3-4 years. This has prompted some international cooperation. The risk of doing business and supply chain disruption both remain very high. Record low Syrian Pound, soaring inflation, an agriculture sector heavily disrupted by conflict has contributed to greater levels of poverty, highlighting the challenges that lie ahead for the new regime in Syria as the inability of the government to provide fiscal stimulus is medium high and exchange transfer high. However, even since December’s events, changes have been made. The new government have ended dollar restrictions and high tariffs and customs duties have been reduced by 50-60%, which has caused an import boom particularly from the West as brands which haven’t been seen since the civil war have poured into Syrian shops. The minister of internal trade said, ‘’Our main task is to pump blood into the arteries of the economy’’. However, there remains a need to aid the recovery of domestic industries after the UN Development Programme (UNDP) have called for long term investment support to support the recovery in Syria. A UN report also highlighted that at the current rate, the economy won’t reach pre-conflict GDP for around 55 years, with 80% of their energy capacity lost, 40 to 50 percent of 6-15 year olds not in education and 66% living in extreme poverty.  

Tunisia (TUN)

Tunisia’s overall risk remains medium high. Kais Saied was re-elected as President in October 2024’s elections, gaining over 90% of the vote. The election was full of controversy with a turnout of only 29%, the imprisonment of opposition members and no public debates or rallies. Five days before the election, Saied’s nearest challenger in the election, Ayachi Zammel was sentenced to 12 years in prison. Many called on Tunisians to boycott the elections. Political interference and legal & regulatory risk are both medium high. In terms of the economy, the IMF forecast 1.6% growth in real GDP for 2025 and 1.5% for 2026. A more positive outlook in the agricultural sector and a hope that the Central Bank of Tunisia will begin easing the policy rate (which has reached 8%) provides some form of optimism of an economic rebound. However, global conditions continue to weigh heavy on the Tunisian economy, on top of slowing private investment, worsening climate conditions and macroeconomic instability. 6.7% inflation is forecast for 2025 and 2026 by the IMF and an unemployment rate last recorded at 16.4% is weakening consumer demand. High government debt levels of 84.3% for 2025 and 85.1% remains a major concern for Tunisia. The cost of servicing debt in 2025 and 2026 is expected to be around USD9.5 billion which coupled with rising yields is putting huge restraint on the economy. In February 2024, Tunisia used USD850 million of central bank reserves to meets its obligations, putting additional pressure on the currency alongside, a -3.4% of GDP current account deficit anticipated this year. This is an issue worsened by the low growth outlook. Sovereign non-payment risk is medium high and the inability of the government to provide fiscal stimulus is now high. To further consolidate power and control over the economic situation, President Saied has revoked a level of independence from the Central Bank of Tunisia, meaning it now has to consult the government before changing interest rates or policies regarding its foreign exchange reserves. Exchange transfer risk remains high. Tunisia is aiming to secure support from IMF’s Extended Credit Facility (ECF) scheme, however the President’s reluctance to be more fiscally sound by removing subsidises and cutting spending. In addition, climate change is a very real threat for Tunisia, with droughts in recent times adding more pressure onto agriculture and food security.

Turkiye (TUR)

Turkiye’s overall risk level remains high when compared to previous risk analysis period, with no changes in any of risk levels in this reporting period. The political tension in the country remains high, particularly after governing party, AKP, lost the popular vote for the first time in 22 years during the local elections in 2024, leading to political violence (currently very high). Political interference stands at medium-high level while legal & regulatory risk also stands at medium-high. The accession negotiations between the EU and Turkiye remains at an impasse while the relations with the U.S. is not at its best as U.S. government accuses Turkiye of circumventing sanctions against Russia during the Russia-Ukraine war. On the economic front, after Turkiye made a shift to traditional economic policies followed by orthodox monetary steps in mid-2023, there is a recent wave of improving economic indicators such as international reserves and current account balance. The banking sector vulnerability is currently at medium-low level, showing the relative strength of the banking system supported by Turkiye’s removal from the Financial Action Task Force (FATF) gray list in June 2024, which was a remarkable development for Turkish financial sector – though the banking sector is still exposed to Turkiye's heavily indebted private sector. The risk of doing business stands at a medium level due to concerns over law enforcement. (Note: Prosecutors questioned two Turkish business leaders representing Turkish Industry and Business Association (TUSIAD) on February 19 after they delivered recent scathing criticism of the government.) Remaining the core economic problem, the inflation stood at 42.1% y/y in January with education, health, and housing prices led the rise in the index. There are still low foreign-exchange reserves relative to external short-term debt while a large gross external financing requirement and vulnerability to external shocks exist. The supply chain disruption risk is at high level as the country struggles due to the regional conflicts in Syria, Gaza and Ukraine.

West Bank/Gaza (PSE)

Egypt and Arab countries idea of a reconstruction of Gaza with safe zone for Gaza residents during building is an alternative to President Trump’s plan of for Gaza residents to move to Egypt and Jordan.  For regional diplomatic and political purposes, Israel will likely review this idea and whether it can be done as a demilitarized zone. However, Israel’s final decision will take account of domestic priorities in Israel, especially as Israel’s opposition to a two-state solution also remains a red line.  The process will not be smooth either and will run in parallel to the proposed 2 phase of the Gaza ceasefire and discussion on the 3 phase, which will likely become trickier and with the risk that the ceasefire could breakdown.  Overall, the economic recovery and rebuilding will likely be delayed in Gaza. West Bank tensions could also intensify. Some political pressure in Israel exists to officially annex parts of the West Bank in 2025 with a friendly Trump administration in the White House; Hezbollah having recently been defeated; Assad removed in Syria and Iran now weaker in the region.  This could risk increased violence between Israeli settlers and Palestinians and a greater Israeli military presence in the West Bank, which could worsen the unstable security and economic environment in the West Bank. All of this means that the West Bank and Gaza risk rating at high could worsen in the coming quarters.

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