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Water-related Risks Constrain Middle East and North Africa Sovereigns Credit Strength

All Middle East and North Africa (MENA) sovereigns face significant water-related challenges, which will be compounded by the effects of climate change.

According to Moody’s, this exposure curbs credit strength by limiting economic growth potential and eroding fiscal resources.

“If left unaddressed, it could also aggravate social and cross-border tensions, increasing political riskm,” says Moody’s.

Water-related risks curb sovereign creditworthiness through multiple channels.

Water scarcity limits economic strength through lost growth opportunities and raises the fiscal burden by compelling governments to spend on projects to support their water resources.

Exacerbated by severe scarcity, water management risks engender social and geopolitical strains because of the critical importance of adequate water supply for food security, economic development and social stability.

Water-related exposures are largest for sovereigns with lowest per capita incomes, while mitigants are strongest in the Gulf Cooperation Council region.

Water scarcity and water management risks pose the biggest credit constraint for sovereigns where water-intensive agriculture is an important source of employment and income, including Egypt, Morocco and Tunisia.

In the energy-abundant Gulf Cooperation Council (GCC), risks are mitigated by higher percapita incomes, implying lower dependence on domestic agricultural output, and the capacity to supplement renewable water resources with energy-intensive seawater desalination.

However, even in the GCC, improving water security will require significant additional investments in water infrastructure, especially in Saudi Arabia, which currently meets most of its water demand by tapping nonrenewable underground aquifers.

“Sovereigns with stronger institutions, which support good water sector governance, will be better positioned to manage water-related challenges.”

Lawrence Baraza

Lawrence Baraza is a dynamic journalist currently overseeing content at Metropol TV Digital. With a keen focus on business news and analytics, Lawrence guides the platform in delivering insightful, data-driven content that empowers its audience to make informed decisions. Lawrence’s commitment to quality and his ability to anticipate market trends make him a key figure in the digital media landscape. His work continues to shape the way business news is consumed, making a significant impact in the field.

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