Inflation in Maghreb will continue to undercut real wages and feed social discontent

Al-Monitor Pro Members

Francisco Serrano

Journalist and analyst specialized in North Africa

Oct. 4, 2022

Morocco, Algeria and Tunisia have sustained high levels of imported inflation, driven by higher food and energy prices. The Russian invasion of Ukraine in February has destabilized government budgets in Morocco and Tunisia while boosting the reserves of hydrocarbons exporter Algeria. But populations in all three countries are paying for costlier food with weakened currencies, and this has the potential to trigger large-scale social instability, disrupting governments and business activity in those countries.

Scenario 1: The conflict in Ukraine intensifies, ensuring that food and energy prices remain high through the winter and all through 2023. Pressure builds, especially in Morocco and Tunisia, as populations continue to see inflation erode salaries and household incomes. Because of its diversified economy and good export performance, Morocco is likelier to ride out bouts of social discontent. In Tunisia, continued price controls accelerate the scarcity of some food products. Protests resulting from a combination of economic and political discontent result in a robust security response, which aggravates social conditions. High food and energy prices continue to put pressure on Morocco's and Tunisia’s fiscal and current account balances and reduce foreign currency reserves. Currency devaluation in these two countries worsens inflation.

A perfect storm of continued food and energy inflation, coupled with another season of insufficient rainfall over winter 2022-2023, would trigger this worst-case scenario. But there are still mitigating effects that might allow North African countries to avoid large-scale and generalized social instability.

Scenario 2: Russia and Ukraine negotiate a cease-fire toward late 2022 to 2023, which eases energy and food prices. Inflation decelerates, and this — in conjunction with adequate cereal production in Morocco, Algeria and Tunisia — lowers domestic food prices, lowering social tension. Budgetary pressures are also reduced, especially in Morocco and Tunisia, due to lower food and energy prices. In Algeria, however, lower energy prices reduce export revenues, limiting the regime’s ability to use social spending to quell political dissent and economic dissatisfaction.

This is unlikely, given Russia’s recent military mobilization and its decision to annex several regions of Ukraine. Kyiv’s recent military successes and support from Western countries will galvanize Ukraine to remove all Russian presence from its borders.

Francisco Serrano is a writer and analyst who focuses mainly on North Africa. He has been published in several outlets, including Foreign Policy, World Politics Review and the Middle East Institute. His second book, "As Ruínas da Década," about the past decade in the Middle East, was published in March 2022.