Country Risk in MENA

Algeria (DZA)

Algeria’s overall risk remains medium-high. The country will hold early presidential elections in September 2024, three months before the originally scheduled date. The early calling of elections, mandated by President Abdelmadjid Tebboune without any type of justification, has added uncertainty to the process, where it remains unclear if President Tebboune will seek reelection or not. Added to this environment, there has not been a major reaction from leading opposition parties to the announcement, most of which are yet to define their candidates for the upcoming elections. The political violence risk is assessed as high in Algeria. Despite reforms to tackle corruption after the Hirak movement, the government still faces structural institutional obstacles that lead to bureaucratic malfunctions and corrupt schemes. Moreover, lengthy bureaucracy, complicated customs procedures, and an inconsistent regulatory environment make both the regulatory and political interference high risks – while the latter is also influenced by the increasing climate of repression.  Consistent with this context, the risk of doing business is high. There are, however, other contributing factors to this assessment; for instance, black markets for foreign currency, diplomatic tensions with European countries, and limited regional integration are examples of these challenges. Within the economic domain, the IMF expects Algeria to grow 3.8% and 3.1% in 2024 and 2025, respectively. In particular, nonhydrocarbon GDP growth is expected to offset the decline in oil production, and growth is to be fueled by a fiscal expansion. In this regard, as the country enters the electoral year, there is a planned increase in spending by 11% throughout 2024. This allocation will prioritize defense, state salaries, and affordable housing. Similarly, the government plans to raise pensions, establish an unemployment fund for young people, approve tax cuts, and maintain subsidies for key sectors. As a result, it is anticipated that the fiscal deficit will widen, and the risk associated with the government's inability to provide stimulus is medium. In a similar vein, the Fund anticipates an escalation in the country's general government gross debt, projecting an increase from 58.8% in 2024 to 63.9% in 2025. This surge is partially attributed to a reversal of the progress made in 2022 and is further exacerbated by the upward trends in the budgets for both 2023 and 2024. Hence, sovereign non-payment is medium-high risk. The banking sector remains healthy; however, concerns arise because financing needs might increase in the medium term, which poses a threat to the financial sector, given the overreliance from the government to be financed by state-owned institutions. Thus, the vulnerability associated to this sector is medium. Lastly, the exchange transfer is a medium-high risk. While the country enjoys of solid reserves levels and maintains a current account surplus (largely supported by hydrocarbon exports), the state does not give great flexibility to its currency – in general, trust in the dinar remains low, and agents look for Euros as a safer alternative.

Bahrain (BHR)

Bahrain’s overall risk level remains medium. Salman bin Hamad Al Khalifa remains Crown Prince and prime minister of the country. Political violence remains medium high, with legal & regulatory risk and political interference at a medium rating. Three Bahraini soldiers were killed in a drone attack near the Saudi border, an act by Yemen’s Houthis. Bahrain demands the Iran backed-group to handover those responsible for this strike. Bahrain has also recalled its ambassador in Israel following the escalation of the situation between the Israelis and the Palestinians. Bahrain, Morocco and the UAE have been trying to improve their diplomatic relationship with Israel over the past few years. Meanwhile, Bahrain came into a security and economic agreement with the United States that is designed to make the region a more secure place, but also strengthens bilateral relations. Supply chain disruption remains medium low. Growth is expected to rise to 3.6% in 2024, according to the IMF. Bahrain’s economy highly depends on the production of oil, which accounts for 60% of the country’s exports and 70% of government revenue. . The Central Bank of Bahrain has increased the key interest rate to 6.25% over the past 12 months, as the U.S. tightening has spilled over. However, Bahrain has managed to keep inflation at relatively low levels and stable over the years, compared to other countries in the area. CPI is forecast to increase to 1.4% in 2024. Bahrain current account surplus is projected to climb to 7% of GDP in 2024, but drop to around 2.4% by 2028. However, Bahrain has a very high government debt/GDP ratio equal to 117%, due to high deficits from 2015-21. Sovereign non-payment thus remains medium high, with exchange transfer at a medium ratings. The Bahraini dinar, the domestic currency, is pegged to the US dollar, at a rate of 1 BHD to2.659 USD. The risk of doing business and banking sector vulnerability remain medium and the inability of government to provide fiscal stimulus medium high.

Egypt (EGY)

Egypt’s overall risk level remains high. Abdel Fattah El-Sisi will remain president of the country, after winning the presidential elections in December 2023, and will now enter his third term of his presidency. Political violence remains very high, with political interference and legal & regulatory risk at a high. 400 people were arrested in October for rioting, after the announcement of al-Sisi to run for a third term. The Egyptian president has also showed that he won’t allow Somalia to be threatened into agreeing with Ethiopia for access to the Red Sea. Finally, Hamas recently asked Egypt to open its borders with Gaza for 6,000 wounded people that required urgent treatment (Sisi wants to avoid Gaza moving into Egypt to help push for a two state solution). Supply chain disruption remains medium high. Al Sisi, who is by many considered as a saviour, has not managed to stabilise or improve Egypt’s economy, during the 10 years he has been president. Growth is expected to slow in 2023 to 4.2% and reach 3.6% by 2024, according to the IMF. CPI is forecast to rise to 23.5% in 2023 and reach a 10-year peak of 32.2% in 2024. The poverty rate in Egypt, a country with a population of 100 million is about 30%. The current account deficit is projected to drop to -1.7% in 2023 and then rebound in 2024 to -2.4%. Sovereign non-payment and exchange transfer remain medium high. The debt/gdp ratio is forecasted to drop to 88.1% in 2024, but remaining at very high levels. The Egyptian pound, the domestic currency, after depreciation was stopped in March 2023.  The huge USD35bln real estate deal with UAE on February 23, combined with an expected USD10bln IMF deal, should help current account financing in the coming years and allow a devaluation of around 30% to reduce real exchange rate overvaluation rather than a currency collapse.  The risk of doing business and the inability of government to provide fiscal stimulus remain medium high, with banking sector vulnerability at a medium low.

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 compared to the previous turbulence in Iraq since 2003, the government does not control Iran backed militias.  Recently this led to a U.S. attack on these militias, after three U.S. soldiers were killed in Jordan.  Militia and the government are now putting pressure on the U.S. military to withdraw after 20 years, either across the whole country or the area outside of Kurdistan.  Any planned U.S. withdrawal would strengthen Iran friendly politicians and militia. Additionally, a new ruling by the federal Supreme Court on Kurdish elections and public salaries risks further increasing tension with Kurdistan. All of this fuels the fractures in Iraqi society prompting widespread corruption, overreliance on fossil fuels and the rule of law still weak. Legal and regulatory risk, supply chain disruption and risk of doing business also remains a very high against this backdrop. Though GDP growth is set to rebound to around 2.9% in 2024 due to a better oil market outlook, the real macroeconomic problem remains inflation that is projected to remain a still elevated 32% in 2024. Combined with the ongoing current account deficit (due to overspending on imports), this means that the currency remains under downward pressure.  This means exchange transfer risk remains at medium rating.  Sovereign non-payment remains a medium-high risk, both due to too high fiscal spending caused by elite interests and also high inflation and the current account. The inability of the government to provide fiscal stimulus also remains at medium-high for the same reasons.  The political violence and associated political instability means that structural reforms are also not moving forward, which is restraining the required increase in the non-oil sector.  It could also have political fallout, if the surging youth population protest at the lack of momentum in job creation.   

Jordan (JOR)

Jordan’s overall risk level remains medium high. King Abdullah II of Jordan remains king of the country. Political violence and legal & regulatory risk remain medium high, with political interference at a high rating. A recent drone attack occurred in Jordan that led to the death of 3 US troops and dozens others injured. The drone strike targeted a US military base in Jordan, for which an Iran-backed militia claimed responsibility. Meanwhile, King Abdullah II visited President Biden to discuss the conflict between Israel and Gaza, as Jordan plays a key role in a possible cease fire. Both parts suggested that there should be an immediate cease fire, that would permanently stop the war and agreed that the only safe long-term goal is a two state solution. Jordan is also believed to have made a number of air strikes in Syria over the year, on suspected drug smugglers and mentioned that these smugglers are very organised and backed by the Iranian army. Supply chain disruption remains medium low. Growth is forecast to rise to 2.7% in 2024, according to the IMF. CPI inflation is expected to drop in 2024 to 2.6%. The Central Bank of Jordan has increased the key interest rate to 7.5% from 7% over the past 12 months to help control inflation. The current account deficit is projected to decline to -5.4% of GDP in 2024 and continue to decline to -3.6% in 2028. The IMF executive board approved of a 4-year arrangement with Jordan, worth USD 1.2 billion, to support the economic program and current account financing. Sovereign non-payment remains medium high, as exchange transfer remains high. The Jordanian dinar is a currency pegged to the US dollar at a rate of 0.7090 per dollar. The risk of doing business remains medium high and the inability of the government to provide fiscal stimulus remains high.

Oman (OMN)

Oman’s overall risk level remains medium. Haitham bin Tariq remains sultan and prime minister of Oman. Political violence and political interference, but also legal & regulatory risk remain medium. The sultan on a recent phone call with the prime minister of the United Kingdom discussed the conflict in Gaza and his beliefs on the importance of a two-state solution, the protection of civilians and ensure access to humanitarian aid to their Palestinian allies. An oil tanker was seized by Iran in the Gulf of Oman that was heading to Turkey, a revenge act towards the US, after they seized the same ship that was carrying Iranian oil one year ago. Supply chain disruption remains medium low. Growth is expected to rise in 2024 to 2.7%, according to the IMF. Oman has revealed a sustainable financial framework which will reduce their reliance on fossil fuels long-term and will attract different investors. The Sultanate is planning to release bonds and loans, whose funds will be utilised to finance this project. This is similar to plans of other gulf countries. CPI is projected to increase to 1.7% in 2024 and reach 2% by 2024. Oman’s current account surplus is forecast to increase to 5.4% in 2024, but decline to 1.6% until 2028. Sovereign non-payment remains medium, with exchange transfer at a medium low. The Omani Rial is the domestic currency and is pegged to the US dollar a rate of 1 USD for 2.60 OMR. The risk of doing business and the inability of government to provide fiscal stimulus remain medium low, while banking sector vulnerability remains medium.

Qatar (QAT)

Qatar’s overall risk level remains medium low. Tamin bin Hamad Al Thani has been the Emir of Qatar, since 2013. Political violence, legal & regulatory risk and political interference remain medium low. Qatar is considered a mediator in the Israeli and Palestinian conflict.  For instance, Israel arranged with the help of Qatar the delivery of medicine to the hostages, but also the release of 110 women, children and foreigners. Following the attacks by Yemen’s Houthis in the Red Sea and the military strikes from the US and UK, Qatar’s PM Sheikh Mohammed Bin Abdulrahman Bin Jassim Al Thani, mentioned that only the end of the war in Gaza will manage to stop any other escalations in the Middle East. Israel’s Prime Minister Benjamin Netanyahu recently accused Qatar of financing Hamas, and called its mediator role as problematic. Qatar characterised these allegations as irresponsible, but not surprising. Meanwhile, Ali Sherif al-Emadi, former finance minister has been sentenced to 20 years in prison for laundering more than USD 5.6 billion USD and pay a fine of USD 16.7 billion. Supply chain disruption remains low. Qatar’s growth is expected to slightly slow in 2024 to 2.2% and rise to 2.8% until 2028, according to the IMF. Qatar’s economy highly depends on the production of oil and gas which accounts for USD114.32 billion worth of exports, while fertilizers the 2nd highest export in value accounts for only USD3.58 billion. CPI is forecast to drop to 2.3% in 2024. The current account surplus is projected to decrease to 15.4% of GDP in 2024 and to 9.3% by 2028, as the demand for oil peaks. Sovereign non-payment remains medium low as exchange transfer remains low. The Qatari Riyal, the domestic currency has remained stable over the past 12 months, being pegged to the USD at a rate of 1 USD for 3.64 QAR. The risk of doing business remains medium low, with banking sector vulnerability medium.

Syria (SYR)

Syria’s overall risk level remains very high. Bashar al-Assad remains the president of Syria. Political violence, political interference and legal & regulatory risk remain very high. Iran, which is considered Syria’s ally has launched strikes against targets in Syria that what were claimed to be Israel spy headquarters. Israel has also carried out air strikes in Syria for many years to Iranian-linked targets and was accused by Iran for launching an air strike that killed 5 members of Iran’s security forces and a number of Syrian forces. At least 10 people were also killed after a suspected air strike by Jordanian forces in south-western Syria, in what is believed to be an attack related to drug smugglers. The U.S. has also bombed 85 targets in Iraq and Syria following an attack that killed 3 US troops in Northern Jordan. Biden warned that if anyone harms an American, the U.S. will respond. A drone attack took place in the largest U.S. base in Syria, which killed at least 6 Kurdish fighters, for which an Iran-backed militia group claimed responsibility. Israel also launched a missile strike in Syria’s capital, Damascus, which according to a monitoring group was frequently visited by major figures of Iran’s Revolutionary Guards and Hezbollah. Supply chain disruption also remains high. Growth is forecast to be equal to -5.5% in 2023, according to the World Bank. A number of factors have contributed to the disappointing economic situation of Syria, such as the civil war in 2011, the currency collapse in 2019 after the economic crisis in Lebanon, sanctions from the West, the massive earthquake in February 2023, as well as the high degree of corruption. CPI inflation in 2023 is expected to be 62.1%, an issue that the government has not managed to resolve yet. The fiscal deficit is projected to be equal to -8.4% in 2024. Sovereign non-payment thus remains very high, as exchange transfer remains high. Syria’s currency, the Syrian pound has not changed in value over the past months and it is currently not pegged to any international currency, but is very vulnerable. The risk of doing business also remains very high, given the violence and lingering civil war tensions. Businesses is Syria have also to face several obstacles, such as widespread corruption, the current conflict in the Middle East, poor infrastructure, economic instability, as well as access to finance. Banking sector vulnerability remains medium low and the inability of government to provide fiscal stimulus remains medium high.

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 local elections on March 31 set the scene in Q1, prompting the government to increase spending as the ruling Justice and Development Party (AKP) sought to win the big cities back from the opposition, which led to political violence (currently very high), and a deterioration in legal and regulatory risk, which is at medium-high. The election results were widely unexpected as AKP lost the popular vote for the first time since the party came to power in 2002. The Republican People’s Party (CHP) won nearly 38% of the national vote, while AKP support fell to 35%, down from 44% in 2019. Consequently, the main opposition party, CHP, won 35 out of 81 municipalities, including mayoral victories in Turkiye’s five largest cities: Istanbul, Ankara, Izmir, Bursa, and Antalya. As the elections are now over, the attention quickly turned to economic issues as Turkish economy is under pressure due to high inflation, increasing budget deficit, and weakening Turkish Lira (TRY). Central Bank of Turkiye (CBRT) continues to regain credibility after the return towards the traditional economic policy making following the May 2023 presidential elections. CBRT continued monetary tightening in Q1 and increased the policy rate by 500 bps to 50% on March 21, citing the need for a tight monetary policy stance in case of a significant and persistent deterioration in the inflation outlook. Despite the risk of doing business in Turkiye remaining at medium level, political interference continues to be a medium-high level and supply chain disruption risk is at high level, increasing tourism revenues, decreasing current account deficit and manageable government debt/GDP trajectory continue to support the economy. Additionally, the banking sector vulnerability is at medium low level, showing the relative strength of the banking system. The recent hikes in wages, weakening currency, elevated upward pressures in services, and surges in public spending during the local elections continue to drive the inflation in first half of 2024, as the impacts of the strong monetary tightening are still feeding through. On the political front, the conflicts in the region continue to affect the Turkish economy negatively particularly taking into account that the relations with the West are not at its best.

United Arab Emirates (ARE)

UAE’s overall risk level remains medium low. Mohammed bin Zayed Al Nahyan, an Emirati Royal, remains president of the United Arab Emirates. Political violence, political interference and legal & regulatory risk remain medium low. The UAE hosted the COP 28, the annual United Nations climate meeting, where countries discuss how to prepare and limit for future climate change. Sultan al-Jaber was appointed president of COP28, who is also the chief executive of the state-owned oil company.  The countries decided that it was time to find other alternatives from fossil fuels in energy systems. The UAE were accused of using the COP28 to make oil deals, and such an act from the COP president is considered a breach of the standards of conduct. Supply chain disruption remains medium low. Growth is expected to slow in 2023 to 3.4% and then rebound to 4% in 2024, according to the IMF. The UAE highly depend on the production of oil and the agreement with OPEC for production cuts have led to slower growth. CPI is forecast to drop to 3.1% in 2023 and reach 2.3% by 2024. The Central Bank of the UAE has raised the key interest rate from 4.4% to 5.4% over the past 12 months, in line with global tightening. The current account surplus is projected to decrease to 8.2% in 2023 and continue to decrease in 2024 to a still healthy 7.7%. Thus Sovereign non-payment and exchange transfer remain medium low. The currency utilised is the UAE Dirham, a currency pegged to the US dollar at a rate 1 USD for 3.6725 AED. The risk of doing business and the inability of government to provide fiscal stimulus remain medium low, with banking sector vulnerability at a medium. UAE, a country with developed infrastructure and tax-friendly environment can be considered as a very attractive location for businesses. The push to diversify the economy away from fossil fuels remains a target into the 2030’s.