The threat from inflation in the Middle East & North Africa

Consumer price inflation in the Middle East and North Africa (MENA) region is forecast to remain elevated in 2021‑22 at an annual average of 14%, as international food and energy prices rise, in the wake of the pandemic. Inflation will be stoked by lingering supply-chain issues in the global economy and by a post-pandemic recovery in demand in Middle Eastern countries.

We expect inflation and its impact to be higher in the lower-income non-oil-exporting MENA economies than in the wealthier MENA Gulf Co-operation Council (GCC) and Asia-Pacific economies, where it will be relatively muted. In some low-income Middle Eastern countries the impact of high inflation will be exacerbated by declines in (already low) income per head in 2021 (compared with 2020), which increases the risk of widespread unrest in these countries.

Food shortages will increase in some low-income non-oil-exporting MENA countries, partly because of climate change, which will cause increased water scarcity in 2021‑23. Food production and crop yields will be affected as a result. Higher local and international food prices will cause political problems for governments wary of lifting subsidies on food staples.

Sharply depreciating currencies in countries such as Lebanon will further aggravate inflation in 2021‑22, driving up the cost of imported goods. The subsequent rise in inflation will further weaken currency values (in real terms), creating a vicious circle of high inflation and declining real currency values.