Country Risk in MENA

Afghanistan (AFG)

Afghanistan continues to have an overall risk of very high. The Taliban had taken control of the country since the recapturing of Kabul in 2021 and since then the group continues to uphold uncontested control and declared the restoration of the Islamic Emirate of Afghanistan. Political interference and legal & regulatory remains very high. The Taliban lead state continues to see tighter restrictions from the West. Most recently, July saw the U.S. appeals court lift an order preventing the U.S. president from removing the protected status of Afghans in the U.S.. In addition, early in June Donald Trump had signed a travel ban for Afghanistan and 11 other countries due to Trump wanting to improve the U.S.’s national security. Deportation has also recently been seen in both Iran and Pakistan of Afghan refugees, with around 1mn refugees in Pakistan expected to be removed before their deadline to leave. International Aid had also seen setbacks in Q2 with the Taliban rulers diverting international aid using force and regulatory powers. This situation has happened many times and is ensuring that aid goes in the direction they want it to go. Political violence also remains very high.

In terms of the economy, since 2021 Afghanistan have lost access to offshore foreign exchange reserves but also to the international banking system. The banking sector also remains in a negative state due to regulatory uncertainty, while liquidity remains a concern for the state. Therefore, sovereign non-payment risk still sits at medium high. In the past, Afghanistan GDP growth was 2.5% according to the world bank in 2024 and continues to stay around this figure. A slight recovery has only been seen to the likes of agriculture, while manufacturing has faced many issues due to the barriers of trade and very volatile environment. Supply chain disruption remains very high. Afghanistan signed a framework agreement for a railway project with Uzbekistan and Pakistan in July. The creation of such transport hub will deepen the trade relationship between the states.

Bahrain (BHR)

Overall risk in Bahrain remains at a steady medium, with Bahrain reaffirming their consistent position for a prolonged ceasefire in the conflict between the Islamic Republic of Iran and Israel alongside, U.S. President, Donald Trump. Head of government and Crown Prince of state remains Salman bin Hamad AI Khalifa, with the next elections expected in November 2026. Political interference and legal & Regulatory risk both remain medium. Bahrain’s Crown Prince met with Trump in July, announcing USD17bn in deals with the U.S.. The investment is a more focused approach on trade and regional security issues, keeping Bahrain as an important security partner of the U.S..

Growth has shown to have stabilized with a current forecast of 2.8% GDP growth in 2025, projected by the IMF to continue at a steady rate of 3% in 2026. Stabilization is predicted, due to less reliance on oil revenues, while greater diversification is being incorporated into the GCC state. Compared to other peers in the GCC, hydrocarbons only account for one-fifth of Bahrain’s overall GDP. The remaining four-fifths entail finance and tourism diversifying Bahrain away from oil, as the financial sector has injected the state with more than 100 fintech firms. However, oil revenue is seen to fluctuate with downturns of prices earlier in the year for Bahrain. The direct benefits of OPEC’S decision to increase oil production in August are not seen to positively impact Bahrain, as focus remains on non-oil growth. The risk of doing business remains at medium low against this backdrop.  Inflation is set to remain relatively low in 2025 at a rate of 1%, although the IMF forecast a slight rise of inflation in the coming years, with 1.5% in 2026. Despite a positive position regarding inflation, the state’s debt position is seen to be quite unsustainable. The IMF have stated a government debt of 141.4% relative to GDP in 2025, with a further rise to 147% in 2026.  This means a medium high sovereign non-payment risk. In the situation of Bahrain being the most indebted Gulf state, the IMF urges the need for fiscal consolidation, emphasizing that spending will have to be cut to reduce Bahrain’s ever-growing debt. The inability of government to provide stimulus thus remains medium high. Finally, the current account balance is 3.3% of GDP in 2025, however, is expected by the IMF to be on a downward slope in the near future, reaching 1.7% in 2026. Exchange transfer risk has risen to medium.

Egypt (EGY)

Egypt’s overall risk level remains high. Political violence risk rating remains very high, with political interference and legal & regulatory risk at high. Egypt remains worried about Israel renewed escalation in Gaza and this spilling over into tensions within Egypt including the risk of displacement of Gaza residents. The government remains apprehensive that any future domestic protests against Israel actions in Gaza could become anti-regime protests. The ongoing cost-of-living crisis also continues to risk protests against high inflation and unemployment. 

Meanwhile, the financial situation for Egypt remains better, despite the adverse effects of the Gaza war on revenue from the Suez Canal and tourism. Egypt enjoys good multi-year funding helped by IMF/EU/World Bank programs and the huge USD35bln UAE investment to build a big tourist city on the Mediterranean coast.  All of this points to a cyclical rebound in Egypt’s economy, with the IMF forecasting 3.8% growth in 2025.  Even so, though the IMF remain broadly supportive of Egypt, the July 2025 IMF review is critical of the military’s large distorting involvement in the economy, as well as no progress on privatisations ambitions.  President Sisi’s bias towards mega projects and need for support from the army also suggests that multi-year fiscal consolidation will likely disappoint. Additionally, inflation is projected to only slow to 19.7% in 2025 and 12.5% in 2026, which is still too high for the domestic economy and will at some stage require a crawling Egyptian Pound depreciation to avoid the real exchange rate becoming overvalued.  Though the current account deficit is projected to come down to 3.7% of GDP in 2026, Egypt has import dependency for wheat and natural gas. However, the healthy external funding improvement help temper concerns about sovereign debt payments. Sovereign non-payment risk is at high rating however as government debt/GDP is still too high and projected to be 87% in 2025. 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. Iran is at a crossroads after the 12-day war with Israel.  One route is towards cautious reforms to reduce internal protests also rebuilding economic and military resilience long-term and could involve a path towards new negotiations with the U.S.  The other route is a conservative approach that seeks to control domestic opposition; distrusts the west; rebuild the nuclear program quickly but with the risk of renewed Israel attacks. So far it is not clear what path Iran will follow.  Protests against the cost of living/corruption crisis have been evident in July and the risk of further protests remains high.  However, most political analysts feel that the police and military are still strong enough to ensure that this pressure will stop short of regime change.  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 43.3% in 2025, with the currency under pressure from the domestic political vacuum. Until inflation comes down, it will make it difficult to achieve close to 3% GDP growth and also remain a cause of economic and political instability. Sovereign non-payment risk has risen one level to very high and the inability to provide fiscal stimulus 2 levels to high. With high political interference to control reoccurring protests, legal and regulatory risk remain very high and the risk of doing business is also at a high level.

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 fully control Iran backed militias.  Though these militias stayed out of the Iran/Israel war, they are a potential fault line for Iran. They also encourage corruption and risk domestic tensions. A modest risk that political tensions in Syria or Iran could spill over into Iraq. 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 be around 1.4% in 2026 due to better oil export outlook after a small 2025 GDP fall, with inflation under relative control at 2.5% in 2025. However, Iraq remains overdependent on oil, with continued underinvestment in gas and non-oil. Though the new 5-year plan to 2028 increases the focus on the non-oil economy, it will be difficult to achieve with a weak government and corruption in the economy.  Fiscal spending is also too high, which in turn keeps the sovereign non-payment risk at medium-high.

Jordan (JOR)

Overall risk in Jordan continues to remain medium high. Head of state, King Abdullah II, continues as King of Jordan since taking over from his father in 1999 and Jafar Hassan is the Prime Minister of Jordan since his appointment in September 2024. The escalating and ongoing conflict in Gaza and the West Bank still is impacting Jordan. Jordan’s standpoint of bringing the conflict to an end is a major priority for the state, alongside other Arab nations but differ from the U.S. position that is more pro-Israel. Jordan fear that an ongoing war could threaten their own political stability as a substantial proportion of Jordan’s population are of Palestinian origin Political violence remains medium high.  In late April, Jordan’s most vocal and influential Islamist movements was shut down after 16 arrests were reported. The arrests linked the 16 Muslim Brotherhood members to the plotting of drone attacks within the Middle Eastern state, threatening national security. Political interference and legal & regulatory risk both continue to be regarded as medium high.

In terms of Jordan’s economy, real GDP growth seems to be on a path of stabilization with a 2.6% forecast in 2025. The IMF further project growth to hit 2.9% in 2026. Jordan’s relationship with the U.S. and president Donald Trump have improved since Trump’s global aid freeze in January, which led Jordan to turn to nearby Gulf countries and Europe. The financing worth approximately USD1.45bn annually, with military support from the U.S. on top is due to the ongoing conflict near Jordan. The risk of doing business remains medium. Inflation currently is forecast at 3.6%, however, according to the IMF 2026 is expected at 2.6%. On the other hand, Jordan continues to be heavily indebted as government debt has reached a level of 92.6% of GDP. Debt is to see a reduction in 2026, with the IMF forecasting 88.6%. Reliance of foreign aid has been one of the reasons why debt has risen over the years for Jordan, with the mentioned aid that the U.S. have unfrozen but also domestic overspending alongside persistent and weak tax collections. Sovereign non-payment risk continues at a medium high rate. The currency used in Jordan is the Jordanian Dinar (JOD). The JOD remains pegged to the USD meaning it does not attract much market risk, however, Jordan’s geopolitical situation has impacted the currency. Finally, exchange transfer risk remains medium high.

 Qatar (QAT)

Qatar’s overall risk level remains medium low. Tamin bin Hamad Al Thani continues to be head of state (Emir), alongside Prime minister, Mohammed bin Abdulrahman bin Jassim Al Thani, who has been serving since March 2023. Political interference is at a medium level of risk with legal & regulatory risk continuing at a level of medium low. Qatar’s role as mediator continues alongside Egypt and the U.S. in the conflict between Israel and Hamas, proposing an updated Gaza ceasefire proposal. With the most recent proposal depicting the ratio of Palestinian prisoners to be released for each individual Israeli hostage. On the economy, 2.4% real GDP growth is forecasted for 2025 and 5.6% growth is predicted for 2026 by the IMF. Hydrocarbon being a predominant part of Qatar’s GDP and remaining at that standpoint, the risk of doing business has remained at a medium low level. A green light has also been given for Qatar’s North Field East natural gas expansion project to begin production in mid-2026, expanding Qatar’s production capacity to meet the ever-growing global demand for natural gas. However, there is major reliance on the energy sector.  Although, hydrocarbon makes up a large majority of growth, the efforts to diversify are in full swing with a recent bid (July 23) to host the 2036 Olympic Games. If the bid is successful, it will be a first for the middle eastern region with the possible expansion of the non-oil economy, which is currently producing 63% of Qatar’s GDP. Thus, supply chain risk remains low. However, a change is the increased volatility in Qatar’s exchange transfer, shifting to a medium low risk. The IMF now forecast 40.5% government debt to GDP in 2025 and predict 39.3% within 2026, which was a slight increase from previous levels. In addition, sovereign non-payment is medium low with Qatar only recording a 757m riyals (USD208m) budget deficit in Q2 2025 compared with Q1 (USD133m).

Tunisia (TUN)

Overall risk within Tunisia remains medium high. The North African state continues to be supported by President Kais Saied since his re-election in 2024. Since Saied’s controversial election, many opponents of Saied have been imprisoned. For instance, in June a Tunisian court had sentenced Sahbi Atig, a senior official of the main opposition party Ennahda, to 15 years imprisonment with charges of supposed money laundering. Political interference continues to be medium high with legal & regulatory risk also remaining medium high. Protests have recently taken place with supporters of President Saied staging a rally outside of the headquarters of the UGTT union and tensions between Presidential supporters and Union members are rising. Weeks prior to this the UGTT Union supported recent Transport strikes demanding higher wages and urgent reforms, paralyzing the state while putting even more pressure on Tunisia’s economic crisis. Political violence continues to remain medium high.

Economically, GDP growth is seen to be sluggish at 1.4% in 2025, estimated, by the IMF, to continue at this rate of 1.4% in 2026. Tunisia’s agricultural and tourism sectors have been contributing to the recovery of the state, but the protests are a headwind. Uncertainty also looms around the country’s global trade, the over reliance on imports of natural gas and oil while domestic production is declining. Government debt lies at level of 82.9% of GDP, while being projected by the IMF to reach 84.2% in 2026. While government debt is expected to rise in the coming years, the Government recognises this. The government is aiming to reduce its foreign debt share via more Tunisian financing and this would mean that the central bank and commercial banks would play a vital role. Sovereign non-payment risk remains medium high. On the other hand, exchange transfer risk has been reduced to medium high. Inflation is seen to be quite volatile during this period with a rate of 6.1% in 2025, rising to 6.5% in 2026. Citizens are also becoming further concerned about the development of the cost-of-living situation in Tunisia. In addition, development of the Enfidha deep-water port continues with it taking up to 2028 to complete the planned three phases. Laws back in October 2024 were aimed to accelerate the pace of major infrastructural projects, including the development of Port Enfidha. Tunisia’s role in international trade will be majorly boosted, with a supposed 50,000 jobs being generated by the project. Risk of doing business remains medium.

West Bank/Gaza (PSE)

The Israel government appear in no mood to curtail military activity in Gaza, as it seeks to takeover Gaza city to destroy Hamas after the Oct 7 atrocities. The Israel military fears being in Gaza for years to ensure stability, and the latest Israel plan rules out the Palestine authority or Hamas controlling Gaza, as part of the strong opposition to a two-state solution. However, further food relief is likely to try to reduce foreign political pressure. Overall, the economic recovery and rebuilding will likely be delayed for years in Gaza, with Arab countries concerned it is also a long-term attempt to expel Gaza residents. West Bank tensions could also intensify. Political pressure in Israel still exists to officially annex parts of the West Bank in 2025 with a friendly Trump administration in the White House; Iran/Hezbollah having been defeated and Assad removed in Syria. This would effectively end scope for a two-state solution long-term. Israel Knesset approved a non-binding annexation in July. If a formal/legal and military annexation occurs this could risk increased violence between Israeli settlers and Palestinians with a much 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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