How US tariffs could impact the MENA region

The Middle East and North Africa (MENA) region has not been cited so far as a focus for the new US administration’s actions regarding trade tariffs. It remains exposed to the imposition of general global US tariffs and to the indirect economic consequences of trade measures imposed on other geographic areas. 

The potential introduction of general global tariffs could hinder export growth from the region, although the region has a moderate level of exports to the US and, other than Israel and Jordan, does not maintain a significant trade surplus. 

Countries in the MENA region that maintain a fixed exchange rate to the US dollar, such as Saudi Arabia and the United Arab Emirates, are likely to face tighter monetary policies as the US Federal Reserve keeps interest rates elevated to combat inflation. This scenario could stifle private sector investment and dampen real GDP growth.

A stronger US dollar, resulting from sustained tariff introductions, would make imports cheaper while diminishing local industry competitiveness, leading to worsening trade balances and lower GDP growth in these pegged economies.

The likelihood of increased US interest rates is expected to significantly reduce portfolio inflows into emerging market debt securities, including those from several MENA countries. As the interest rate differential with the US narrows, the incentive to invest in local debt diminishes, potentially leading to capital outflows and liquidity challenges reminiscent of Egypt's hard currency crisis in 2022/2023. Although Egypt has strengthened its position with Gulf investments and an IMF program by early 2025, reduced capital from Gulf monarchies could threaten recent improvements in its debt metrics and external position.

Countries like Tunisia and Morocco may face deteriorating debt sustainability metrics if capital outflows continue if the interest differential with the US dollar market narrows. Should oil prices decline alongside tighter financial conditions, oil-exporting nations in the MENA region could be compelled to cut spending and postpone investment initiatives.

Weaker economies may mitigate debt sustainability risks through bilateral financing. Still, the overall indirect impacts of prolonged higher interest rates and a stronger US dollar are likely to hamper growth, reduce export competitiveness, and increase liquidity pressures on debt-stressed countries like Egypt and Tunisia.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.