Jordan, too, has been grappling with low growth, resulting in part from an overvalued fixed exchange rate, along with geopolitical and economic disruptions. The large influx of Syrian refugees and trade disturbances following the Syrian civil war have further strained its economy. Meanwhile, Jordan has been wrestling with control of its public finances, burdened by hefty subsidies, public enterprise transfers, and security expenditures\u2014largely because of geopolitical factors\u2014all while depending heavily on official aid. Fortunately, Jordan has a more effective policymaking framework than the other three countries and is performing well under its current IMF program. Nevertheless, its high debt makes it very vulnerable to adverse developments.<\/p>\n\n\n\n Lebanon\u2019s debt crisis was driven by an unsustainable system built on fixed exchange rates and weak public finances, which required high interest rates to draw foreign inflows\u2014a classic Ponzi scheme. This flawed system, along with persistent political deadlock and the banking sector\u2019s undue influence on policymaking, has precipitated a multifaceted economic and social crisis, leading to default on domestic and external sovereign debt.<\/p>\n\n\n\n Tunisia stands out as the only Arab Spring nation that appeared to take steps toward enhanced democracy and governance. However, the increasing role of the government as an employment and subsidy provider, coupled with the COVID-19 shock\u2014which assailed the economy and budget (Mazarei and Loungani 2023)\u2014have put Tunisia on shaky ground. The authorities insisted on maintaining exchange rate stability even when it was unaffordable. This led to dependence on external inflows, primarily from official creditors who supported Tunisia\u2019s democratic transition. But recent political upheavals that have undermined Tunisia\u2019s democratic progress, coupled with a refusal to implement necessary reforms, have eroded Tunisia\u2019s debt repayment capabilities, leading the country inexorably toward debt distress.<\/p>\n\n\n\n Previous debt crises<\/p>\n\n\n\n The MENA region\u2019s tryst with debt crises is not a recent phenomenon. The region witnessed episodes of debt distress during the 1980s and 1990s, spurred by internal and international conflicts and unfavorable global conditions, including adverse shifts in commodity prices. Poor management of fiscal and external imbalances led to multiple instances of restructuring of debt that was primarily public and publicly guaranteed (see table).<\/p>\n\n\n\n The main creditors to the MENA countries during these crises were the Paris Club and regional bilateral creditors, commercial banks, and multilateral agencies. The debt crises of the 1980s were managed through agreements within the Paris Club and private banks (known as \u201cBrady deals\u201d), requiring structural adjustment programs.<\/p>\n\n\n\n Another series of debt rescheduling efforts took place during the 1990s and early 2000s to address debt distress caused in part by fallout from regional conflicts, notably the first Gulf War. These debt rescheduling efforts, particularly for Egypt, Iraq, and Jordan, were carried out with substantial support from the international community and international financial institutions.<\/p>\n\n\n\n Despite these historical debt restructuring episodes, today the road to further restructuring is riddled with challenges. Given the current economic climate, it is likely to be significantly more complex and difficult.<\/p>\n\n\n\n The new debt reality<\/p>\n\n\n\n Recent years have seen significant advancements in the global debt architecture, most notably the introduction of collective action clauses in sovereign bond contracts. These changes have hastened debt restructuring of sovereign Eurobonds, a step in the right direction. However, on the whole, new developments have complicated sovereign debt restructuring\u2014and this complexity is accentuated by flaws in the global financial architecture. The restructuring ordeal in Sri Lanka stands as a testament to the lengthy delays and potential trauma associated with such proceedings today.<\/p>\n\n\n\n Restructuring is now more difficult than in the past for several reasons. First, the ascent of China and other non\u2013Paris Club creditors means that the official creditor base is more fragmented. Although China\u2019s claims on high-debt MENA countries are not substantial, its emergence as a leading global creditor has rendered the restructuring process in general more political, slower, and more challenging. Second, private creditors have exhibited reluctance and tardiness in providing debt relief. Third, a significant number of MENA countries\u2014Egypt is a prominent example\u2014have considerable domestic debt outstanding. Creditors may in the future request an expanded restructuring perimeter to include such debt. However, most of this domestic debt is held by local banks and pensions, making its inclusion particularly problematic.<\/p>\n\n\n\n Finally, the Group of Twenty Common Framework applies only to low-income countries and therefore is not applicable to most MENA countries, which are middle-income. The exceptions are Sudan, which is finally addressing its long-standing debt issues under the Heavily Indebted Poor Countries initiative (but may have trouble proceeding because of its domestic conflict), and Yemen, a country still grappling with conflict, which will likely need time to resolve its debt problems. This new debt reality means that addressing the burgeoning MENA debt issues is a steeply uphill task.<\/p>\n\n\n\n What next?<\/p>\n\n\n\n The specter of unsustainable debt and protracted, distressing restructuring looms over high-debt MENA countries. These risks could be mitigated through a combination of growth-boosting policies, new financing, and some degree of fiscal consolidation. However, the prospects for now appear grim.<\/p>\n\n\n\n First, the world economy faces a weak forecast\u2014growth prospects are continually being downgraded amid persistently high inflation.<\/p>\n\n\n\n Second, securing external financing will pose a significant challenge and, if procured, will carry high interest rates. The Gulf Cooperation Council\u2019s oil-rich nations, which have traditionally provided substantial financing, have revamped their aid strategy. They now insist on the borrowers\u2019 concrete, credible commitment to structural reforms, including those aimed at making their economies more inviting for foreign direct investment.<\/p>\n\n\n\n Third, although fiscal consolidation could be beneficial, it is not guaranteed to reduce debt, as noted in the IMF\u2019s April 2023 World Economic Outlook<\/em>. Moreover, given the tense social and political climate in high-debt MENA countries, public acceptance of expenditure cuts, especially to subsidies, will likely be difficult.<\/p>\n\n\n\n It may be tempting for these countries to continue muddling through, hoping that donors and multilateral agencies will come to the rescue. Some countries might even resort to inflation surprises to ease their domestic debt burden, as predicted in the IMF\u2019s May 2023 Regional Economic Outlook for the Middle East and Central Asia<\/em>. However, the path to genuine, lasting reform calls for more substantive measures.<\/p>\n\n\n\n Each high-debt MENA nation must take urgent steps to circumvent debt distress and potential crises. The measures will vary from country to country, but all must address key governance issues broadly (ERF-FDL 2022) and credibly commit to reform. For instance, Egypt should dismantle its overbearing regulatory system and diminish the army\u2019s role in the economy to spur growth and should carry out solid privatization that attracts foreign investment. Jordan should implement deeper structural reforms to avert a crisis. Tunisia needs to quickly reverse the recent erosion of democracy and embark on crucial reforms. Lebanon must urgently form a government that transcends its deep-seated confessional divisions (in other words, the division of power among religious groups) and steers the country toward reform.<\/p>\n\n\n\n The chances of either the requisite reforms being implemented or the global economic climate turning favorable are slim\u2014and both are needed. The MENA high-debt nations do have a narrow escape route from impending debt crises, but existing policies and unfavorable global developments are likely to constrict that path further. In particular, the prospects for fundamental changes in politics and economic management are dim. Consequently, some form of debt restructuring may be unavoidable. Debt restructuring, due to its inevitable economic disruption and harm, should be seen as a last resort. But if it is indeed inevitable, it is preferable to do it preemptively, as part of a broader set of corrective actions.<\/p>\n\n\n\n The highly indebted MENA nations find themselves in the path of a debt storm spawned by internal inefficiencies, poor governance, and an unforgiving global economy. Dodging this tempest will require swift, pinpointed interventions; real reform; and the readiness and ability to face up to debt restructuring. Time is of the essence; now is the moment for bold action. The question is whether these countries will undertake the needed political changes and take advantage of this critical juncture to commit to, and enact, reform\u2014or simply continue to drift further into a sea of debt.<\/p>\n\n\n\n Further readings<\/p>\n\n\n\n Economic Research Forum (ERF) and Finance for Development Lab (FDL). 2022. \u201cEmbarking on a Path of Renewal: MENA Commission on Stabilization and Growth.\u201d Giza, Egypt.<\/p>\n\n\n\n International Monetary Fund (IMF). 2023a. \u201cComing Down to Earth: How to Handle Soaring Public Debt.\u201d World Economic Outlook,<\/em> Chapter 3. Washington, DC, April.<\/p>\n\n\n\n International Monetary Fund (IMF). 2023b. Regional Economic Outlook: Middle East and Central Asia<\/em>. Washington, DC, May.<\/p>\n\n\n\n Mazarei, Adnan, and Prakash Loungani. 2023. \u201cThe IMF\u2019s Engagement with Middle East and Central Asian Countries during the Pandemic.\u201d IMF Independent Evaluation Office Background Paper BP\/23-01\/10, International Monetary Fund, Washington, DC.<\/p>\n\n\n\n Opinions expressed in articles and other materials are those of the authors; they do not necessarily reflect IMF policy.<\/em><\/p>\n\n\n\n This article was originally published by <\/em>IMF Finance & Development<\/em><\/a>. Read the <\/em>original article.<\/em><\/a><\/p>\n\n\n\n![\"\"](\"https:\/\/menastability.org\/wp-content\/uploads\/2026\/03\/image-2.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/menastability.org\/wp-content\/uploads\/2026\/03\/image-3.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/menastability.org\/wp-content\/uploads\/2026\/03\/image-4.png\")
<\/figure>\n\n\n\n