The World Bank has expressed worry over the potential ramifications of Middle East tensions, cautioning that they could hinder the recent progress in global market accessibility. The East African reports that the World Bank’s Chief Economist for Africa, Andrew Dabalen, highlighted the escalating conflict in the region as a key factor that might drive up global oil prices. Such a scenario, he warns, could reignite inflationary pressures and prompt major central banks to tighten their monetary policies, thereby impeding the access of frontier economies, particularly those in Africa, to global markets.
Although Africa has largely managed its major dollar-denominated maturities for 2024, concerns persist regarding any new disruptions in global markets, which could complicate the ongoing efforts to resolve debt distress among frontier economies. Notably, Kenya’s partial refinancing of its $2 billion Eurobond maturity and Egypt’s handling of its $2.57 billion maturities through increased concessional financing have been significant developments. However, upcoming maturities in 2024 for Kenya and Senegal underline the ongoing challenges.
Dr. Dabalen emphasizes the pivotal role of Middle East developments, citing the potential for oil price spikes to fuel inflation and keep interest rates elevated in the US and Europe, leading to currency depreciation and dampened growth prospects. These concerns coincide with the OPEC basket price surpassing $90 per barrel in April 2024 for the first time in 10 months, raising fears of renewed inflationary pressures in Africa.
Moreover, Dr. Dabalen notes that while some African economies have managed to access global markets in 2024, the high premiums demanded by investors pose a significant barrier, especially for economies in debt distress. He underscores that although countries like Côte d’Ivoire, Benin, and Kenya have returned to global markets, the associated costs are substantial, with premiums around 12 percent for countries facing debt distress.
Recent events, such as Iran’s drone attack on Israel and subsequent statements regarding a potential review of its nuclear doctrine, have further heightened geopolitical tensions, adding to the uncertainties surrounding the Middle East and its implications for global markets
“At present, we have observed a decline in inflation across Africa, but there is a genuine apprehension that any uptick in oil prices—bearing in mind that 18 percent of global oil consumption is influenced by Gulf prices—could reignite inflationary pressures. Just as we believe we’ve managed to rein in inflation, a potential disruption in oil prices could jeopardize our efforts and exacerbate the situation. This is the primary concern. You mentioned the return of Côte d’Ivoire, Benin, and Kenya to the global market. While there has been a slight easing of financial market access, it comes at a considerable cost. For many countries grappling with debt distress, particularly those not as fortunate as Kenya, Benin, or Côte d’Ivoire, the premium stands at around 12 percent, rendering access unattainable,” remarked Dr. Dabalen.
The recent drone strike by Iran on Israel on April 13, purportedly in response to an Israeli attack on its consulate in Damascus on April 1, has heightened tensions. Additionally, an Iranian commander suggested on Thursday that Tehran might reconsider its nuclear doctrine in the face of Israeli threats, prompting concerns about the true nature of Iran’s nuclear program, which it maintains is solely for peaceful purposes.
“The possibility of reviewing our nuclear doctrine and political stance, along with previously communicated considerations, remains open,” stated Ahmad Haghtalab, the commander responsible for nuclear security, as reported by the semi-official Tasnim news agency.
Iran’s Supreme Leader, Ayatollah Ali Khamenei, holds ultimate authority over Tehran’s nuclear program, which the West suspects may have military objectives.
