Markets resilience surges amid ongoing global uncertainty: a recent trend emerges

Global companies deal with unpredictable country risks in foreign business, considering factors like political stability and debt payment capacity. Our Sovereign Transfer and Arbitrary Risk (STAR) rating indicates the overall stability of country risks. In recent months, we've upgraded more countries' ratings than downgraded, signaling a positive shift in some markets since the pre-pandemic period.

Companies that do business internationally rely on the stability of the business environment in the given country to operate successfully. Profits and investments are vulnerable to adverse developments in the foreign country’s environment. These risks are beyond the control of any private entity and are broadly termed country risk.

Country risk covers a wide range of factors such as political developments, the risk of (armed) conflict and the national financial situation. These factors relate to, for example regulatory changes, the risk of confiscation, civil unrest, current controls and devaluations. Country risk takes into account a sovereign’s willingness and ability to pay its debts, and the impact of this on the ability of public or private entities to meet their cross-border payment obligations.

While geopolitical risks have come back to the forefront of challenges to the global economy, the stability of country risk at the global level shows increasing resilience. We quantify these risks through our sovereign transfer and arbitrary risk (STAR - Sovereign Transfer and Arbitrary Risk) rating, visualised in our risk map. Last year was the first year since 2019, before the pandemic, that we upgraded as many countries’ ratings as we downgraded.

Here is what Dana Bodnar , one of our Economists had to say:

“While global geopolitical uncertainty is up and countries face higher prices and borrowing costs, we assess country risk at the global level to be relatively stable. For the first time since the pandemic, we upgraded as many countries as we downgraded over the past year. This points to increasing signs of resilience in many markets.”

Country risk developments

At the regional level, sub-Saharan Africa saw both the most upgrades and the most downgrades, leading to the highest net count of downgrades. But with two downgrades more than upgrades, the region recorded the worst net performance in rating changes.

Country risk in Latin America saw a near-balance in country risk developments but with five downgrades compared to four upgrades, a net worsening. For Emerging Europe, Asia-Pacific and Middle East & North Africa, country risk conditions stayed stable with equal counts of upgrades as downgrades. Western Europe was the only region that saw a net improvement with three upgrades and no downgrades, while North America recorded no changes.

Here we present some of the highlighted country risk movements over the past year per selected emerging market region.

Sub Saharan Africa

Sub-Saharan Africa saw the worst net performance in risk ratings in 2023. High and rising borrowing costs, food security issues and a cost-of-living crisis strained the region’s economy. Deteriorating security situations in some countries further contributed to downgrades. These include:

• Gabon ▼: Political uncertainty is high following the military coup in August that ousted the long-standing president, Bongo, and could cause the security situation to deteriorate. The shock is also detrimental to economic growth and investment in Gabon’s oil-dependent economy.
• Niger ▼: Niger’s economy is struggling under stringent international sanctions imposed following the military coup last July. There’s still no roadmap for an acceptable power transition, preventing the disbursement of IMF funds, increasing economic distress and security risks.

While sub-Saharan Africa saw the worst net performance in risk ratings in 2023, this masks the highest count of upgrades among regions. Six African countries were upgraded over the past year, including:

• The Gambia ▲: The Gambia’s economic outlook is positive, driven by a recovery in the tourism sector, fueling greater investments in construction and infrastructure. We expect a successor IMF programme to begin this year, further improving public finances and boosting the growth outlook though the risk of social unrest persists.

Latin America & the Caribbean

While also recording a net deterioration in country risk, conditions in Latin America and the Caribbean are also stabilising. On balance, there was one more country downgraded than upgraded in 2023, compared to five on average from 2020 to 2022.

• Bolivia ▼: The risk of dollar shortages and a disorderly devaluation of Bolivia’s overvalued exchange rate are very high. International reserves are declining from already low levels and the government has resorted to borrowing from multilaterals and the central bank to selling gold, in order to support the fixed exchange rate.
• Costa Rica ▲: Costa Rica has moved into the moderate risk category, reflecting the structural improvement of government finances following strict fiscal consolidation and sustained access to financing. The exchange rate has become more flexible and official reserves have strengthened, reducing transfer & convertibility risks.

Middle East & North Africa

The relative stabilisation of the oil price in 2023 helped boost investment and growth prospects for oil exporters in the Middle East but economic imbalances, security risk and the cost-of-living crisis weighed on the region’s risk profile.

• ?Tunisia ▼: Tunisia’s structurally weak economy has fallen deeper into crisis since Russia’s invasion of Ukraine sharply increased food and energy prices. Political instability continues to block the ratification of a much-needed IMF reform programme, increasing the risk of sovereign default and a balance of payments crisis.
• United Arab Emirates ▲: The political and economic situations in the UAE have been stable and the growth outlook remains robust. The UAE favours a balanced approach to diversifying and greening its economy which is positive for foreign trade and investment, while also contributing to steady improvements in public finances.

For more insights into how we measure country risk, including background information about our STAR (Sovereign Transfer and Arbitrary Risk) rating, please visit our Country Risk Map

Contributors

Dana Bodnar , Economist

Silvia Ungaro , Senior Writer

Other related articles you might be interested in

• Inflation, jobs, isolationism dominate US election
• Red Sea crisis : a new threat to global trade
• Ukraine external support - January 2024