In the framework of its regular review of short-term (ST) political risk classifications, Credendo has upgraded three countries (Djibouti, Fiji, North Macedonia) and downgraded seven countries (Bolivia, Costa Rica, Maldives, Mongolia, Oman, Sint-Maarten and Tonga).

Bolivia: downgrade from 2/7 to 4/7

Protests have been rocking the Andean country since the presidential elections held at the end of October, which were allegedly marred with fraud. The incumbent president, Evo Morales, who appeared to have won the elections, resigned and fled the country after three weeks of violent protests. An interim government, led by Jeanine Áñez of the right-wing opposition party, was sworn in with the support of the judiciary and the military. However, Morales’s party, the left-wing MAS that holds a two-thirds majority in the legislature, refuses to recognise her as the interim president. Protests have reduced in the past week but Bolivia seems to have entered a phase of political instability as unrest continues to linger. The main challenge is that the current polarisation is not driven by policy differences (on which a compromise can be reached) but by differences in terms of identity and culture, which are extremely challenging to overcome, especially in a country with deep political and ethnical divisions. In addition, the unstable political situation will complicate the implementation of urgently needed reforms. Reducing the rising pressure on the currency peg will be key. Indeed, the quick decline of the foreign exchange reserves in the past 5 years to roughly 5 months of import cover in September 2019 is putting strong pressure on the currency peg. On top of that, the current political instability heightens the risks of disorderly fiscal, economic and currency adjustments. Given these events, the short-term political risk category has been downgraded by two notches to category 4/7.

North Macedonia: upgrade from 3/7 to 2/7

Since 2018, economic performances have been strengthening in North Macedonia on the back of robust services and manufacturing sectors, large public investments, increased exports and FDI. Until last October, the overall context was favourable, with the prospect of starting EU membership negotiations, but these were postponed again, this time to spring 2020. However, the positive momentum and reform process are likely to persist in the months ahead and to boost future investment inflows. They will easily finance the current account deficit which is expected to widen again next year to 1.2% of GDP, still a relatively and historically low level. As a result of a stabilising short-term debt and foreign exchange reserves at more than 3.5 months of import cover, the country’s external liquidity situation has gradually improved, justifying an upgrade for the short-term political risk to category 2/7.

Oman: downgrade from 2/7 to 3/7

Since 2015, Oman has been running a significant and structurally large twin deficit, after the oil price started to drop in the course of 2014. The fiscal deficit peaked at 21.3% of GDP in 2016 but still averaged a staggering 14.8% of GDP in the years 2015¬–2018. The current account deficit also peaked in 2016, when it reached 19.1% of GDP, but in the years 2015–2018 it averaged 14%, which is a high level too. As a consequence, the gross external debt level has risen, leading to increased debt service costs. Apart from that, an increase in the short-term debt level can also be seen. These elements caused a steady deterioration of Oman’s liquidity position, which motivated a downgrade of the short-term political risk category to 3/7.