In the framework of its regular review of short-term (ST) political risk classifications, Credendo has upgraded eight countries (Belarus, Gambia, Indonesia, Mongolia, Senegal, Suriname, Uganda, Uzbekistan) and downgraded one country (Gabon).
As in the previous quarter, the third quarter of 2017 for the short-term political risk was characterised by a higher number of upgrades compared to downgrades, this time to a large extent. Political stability, recovering liquidity and external financial support are some of the specific factors explaining the positive trend for the upgraded countries. For the rest of the year, the global economic trend remains favourable for emerging and developing countries (except for most members from the CFA franc zone) on the back of stronger US/EU demand, robust Chinese growth and slightly rebounded commodity prices. The 2018 outlook is more uncertain due to high debt levels (private and public alike), to slowly tightening monetary conditions in advanced economies and to geopolitical tensions.
- Belarus: upgrade from 7/7 to 6/7
Belarus benefited from growing appetite for high-yielding sovereign debt to issue an international bond. As a result, the gross foreign exchange reserves surged in June 2017 (cf. graph) and covered 2 months of imports in August 2017. Moreover, after having dropped by more than 20% between 2014 and 2016, the current account receipts of the country are expected to rebound slightly this year. In this context and taking into account the fact that short-term debt remains high, Credendo upgraded its short-term political risk from category 7 to category 6.
- Gambia: upgrade from 7/7 to 6/7
Almost 10 months after the unexpected defeat of erratic president Yahya Jammeh, cover for short-term transactions is resumed. Indeed, Gambia’s short-term political risk was upgraded to category 6 (from off-cover category 7). The foremost reason is the apparent gradual recovery in foreign exchange reserves. Nevertheless, the current account deficit remains wide and is even projected to grow somewhat. Yet it is likely to be financed by recovering donor support and higher FDI inflows. Nonetheless, Credendo will remain off cover for public buyers. The new government inherited dire public finances that are currently still under great pressure. Public interest payments are expected to absorb more than 30% of general government revenues this year. In fact, the Gambian government is still in debt distress according to the IMF. Consequently, the non-payment risk for public debtors remains elevated.
- Mongolia: upgrade from 6/7 to 5/7
Mongolia’s external liquidity is gradually benefiting from the multi-billion financial package agreed in February which includes the start of an IMF programme that was approved last May. Moreover, Mongolia sees coal production and exports strengthen while it benefits at the same time of rebounded mining prices, particularly copper, i.e. Mongolia’s top export. All those factors contribute to raise GDP growth (to an expected 2% in 2017) and to alleviate the country’s liquidity position, thereby justifying the country’s upgrade to a lower political risk category (5/7).
- Senegal: upgrade from 5/7 to 4/7
Besides its stable political scene, Senegal is also one of the strongest growth performers in western Africa. It has a better-than-average liquidity position compared to other WAEMU member states. Even though the current account deficit is structural, it’s ratio to export revenues remains relatively limited, while the country attracts sufficient financial inflows to finance the deficit. Consequently, Senegal’s short-term political risk was upgraded to category 4 (from 5).
- Uganda: upgrade from 4/7 to 3/7
Uganda’s foreign exchange reserves continue to remain stable at around 4.5 months of import cover. While larger current account deficits and larger debt levels are projected for the coming years due to infrastructure investments, Credendo does not expect this to impact liquidity.
- Uzbekistan: upgrade from 6/7 to 5/7
In September 2017, the Uzbek authorities decided to lift most of the Soviet-era exchange restrictions. Moreover, the currency was devalued by 50% and according to international press, the exchange rate will be determined by market factors. This is likely to reduce the pressure on the foreign exchange reserves. Therefore and as its payment experience improved, Credendo decided to upgrade the short-term political risk from category 6 to 5.