Country risk review 2016: Populism is risky

Euromoney Country Risk shows global risk rising, as leading economists and political experts revise their views on asset safety.

  • By Jeremy Weltman
  • 06 Jan 2017
Email a colleague
Request a PDF

By: Jeremy Weltman

Published on: January 2017

review 3



In total, 97 of the 186 countries included in Euromoney’s Country Risk survey became riskier in 2016 (their total risk scores fell), 69 became safer and the remainder were unchanged.

ECR’s survey is conducted on a quarterly basis and quantifies the opinions of more than 400 contributors, uniquely aggregating the views of experts from both the finance and non-finance sectors.

Their scores on 15 key economic, political and structural factors are added to values for capital access, credit ratings and debt indicators to provide a total risk measure, ranging from a maximum 100 points (total safety) to zero (certain default).

In 2016 economic risk increased for 85 countries and political risk for 80, with the global mean average total risk score languishing almost eight points below the level prevailing in 2007, before the financial crisis.

The financial system remains a big weakness in the eyes of global investors. Despite the tightening of regulation bolstering capital and liquidity requirements and restricting higher-risk lending, bank stability deteriorated in 2016 for 53 countries, including Azerbaijan, Germany, Italy, Kazakhstan, Luxembourg, Switzerland, Turkey and Venezuela.

The transfer risk associated with government non-payment or non-repatriation of capital increased in 51, mainly frontier markets, including Barbados, Congo Republic, Haiti, Lebanon and Mozambique. 

Currency stability was questioned in 43 countries, including Azerbaijan, Egypt and Japan; corruption in 40 countries, notably Brazil, Liberia and Montenegro; and the policymaking and regulatory environment in 35, especially the UK in the wake of the June Brexit referendum.

Biggest concern

Italy proved to be the biggest global concern of all in 2016, weighed down by political and banking crises. Italy’s total risk score fell more than any other country outside the African continent, precipitating a nine-place drop in Euromoney’s global risk rankings to 51st place, pushing the eurozone’s largest borrower, after Greece, below Spain to its lowest rating in three years. 


review 2Italy’s former prime minister Matteo Renzi’s pursuit of institutional reforms to improve government stability risked bringing down the government at a time of rising popularity for the anti-establishment, euro-sceptic Five Star Movement. The populist party capped a successful year by gaining the mayoralty of Rome, prompting risk experts to fear the prospect of extensive political turmoil, heightened by a legacy of bad debt weighing down the banking sector. 


Those concerns were realized in December when the reform proposals were rejected in a referendum and Renzi resigned, putting pressure on the euro, causing a spike in Italian bond yields and promising months of uncertainty ahead.

Italy’s capital access score plunged more than any other country worldwide, eclipsing the tightening of financial conditions experienced by 56 other sovereign borrowers, including Nigeria, Kenya and many other, predominantly sub-Saharan African, nations.

Stability indicators for Italy’s government and its banking sector were downgraded, revealing a higher perceived level of risk compared with other eurozone and even Turkish banks. 

Extreme China

China dominated global risk perceptions during the first months of the year. The survey experts took a dim view of its lower economic growth trajectory and structural-reform risks tied to high and rising debt levels, which contributed to another bout of financial instability early in the year.

By December, China’s risk score was lower than at any time since the global liquidity crisis erupted in 2008, falling four places in Euromoney’s risk rankings, below Botswana, Cyprus and Spain, to 45th place. 

"China’s extreme tail risks of disorderly deflation in real estate and debt bubbles in the economy became more prominent in 2016," says professor Constantin Gurdgiev from the Middlebury Institute of International Affairs.

review 1

These problems are compounded by the continued stagnation in global trade flows and are also weighing on the Chinese banking system. China’s bank stability score of 5.1 out of a maximum 10 points is lower than the corresponding values for Brazil, India, South Africa and Turkey.

Russia’s score, by contrast, rebounded slightly after having fallen sharply in 2014/15 in tandem with plunging oil prices and EU sanctions. The improvement was partly due to the oil price recovering a little from its lowest point in response to Opec production cuts and in anticipation of better relations with the US under Donald Trump. 

But Russia is still marked down heavily, while many other large emerging markets also became riskier options during the year. 

Brazil’s deteriorating fortunes continued, with all bar one of its 15 risk indicators downgraded, as the new government of president Michel Temer encountered difficulty in stabilizing the domestic political situation. Heightened instability linked to the weak economy and the emergence of another political corruption scandal sent Brazil down to 64th in the global rankings. A cumulative drop of 24 places since 2010 puts the nation less than two points above the drop zone into tier 4, the second-lowest of ECR’s five risk categories synonymous with a B- to BB+ credit rating.

"In simple terms," Gurdgiev explains, "many of the larger emerging-market economies witnessed the repricing of risk in line with poor macroeconomic and geopolitical fundamentals".

review 4

The military coup and a subsequent tightening of presidential control in Turkey contributed to a lira shock and put survey scores for currency stability and other economic indicators, including GDP growth prospects, under pressure. The subsequent transformation of Turkish foreign policy saw relations with Russia improve, but strained those with the EU and US.

Asian borrowers

The China factor, the prospect of higher US interest rates encouraging capital outflows from emerging markets and domestic political factors contributed to the reassessment of Asian borrowers more generally.

The domestic factors included the corruption scandal enveloping Park Geun-hye in South Korea, whose presidency was marred earlier in the year by defeat for her party and a rise in economic risk sparked by weak growth and rising levels of personal debt. 

Others were the ousting of the pro-China administration in Taiwan, causing a freeze in cross-strait relations; the uncertainty surrounding the royal succession in Thailand; and the dangers posed by Philippine president, Rodrigo Duterte, whose aggressive approach to policymaking and foreign diplomacy led to a spike in institutional risk.

As the year wore on, Euromoney’s broad cross-section of experts also became more conscious of the rise in populist politics, which led to the surprise outcome of the June Brexit referendum in the UK and the victory for Donald Trump at the US presidential elections in November.

Brexit may or may not deliver longer-term advantages to the UK, but the uncertainty over trade relations, the impact on financial services and the huge administrative and legal complexities involved in leaving the EU mean its score worsened. The risks of investing in the UK are higher than at any point since the global financial crisis. UK experts took a dimmer view of prospects for economic growth, the stability of sterling, institutional risk and government stability.

The US risk profile has also deteriorated slightly since the elections.

"It’s hard not to overstate the importance of Trump’s victory, the notion that, beyond America’s Rust Belt, Trumponomics could have a transformational impact on the global economy – notably the emerging markets of Latin America, MENA and Asia," says Nicolas Firzli, director-general of the World Pensions Forum and advisory board member of the World Bank Global Infrastructure Facility.

review 5


The threat of a Trump administration tearing up the North American Free Trade Agreement (Nafta) and placing limits on immigration led to Mexico’s risk score weakening in December in tandem with peso depreciation. 

The sinking currency, along with those of other countries affected by the political change in Washington, among them Canada, India and Malaysia, is "an indication of how a certain degree of protectionism (Trump’s 'fair trade’) will be combined with unembarrassed deficit spending to fuel massive infrastructure, construction and defence spending," Firzli adds. "Call it self-seeking populist capitalism."

Political risks also increased in Germany, where Chancellor Angela Merkel is seeking to defend Europe’s liberal consensus in elections in October 2017; she is facing growing opposition to her immigration policy from the emergent populist right.

Germany is also facing up to the threat of Brexit creating another crisis for the EU, where 13 countries became riskier in 2016 despite the gradually improving economic situation, highlighting how investor risk can be readily affected by political factors.

"The year turned out to be one of unthinkable outcomes as the survivability of elites ruling the roost unchallenged turned out to be democratically wrong," says Johan Krijgsman of Krijgsman & Associates.

He explains: "The populist, nationalist and revolutionary tags being used to explain the changes are superficial. Generally, it seems the masses are just fed up with their lack of progress and the sense of entitlement that the powers-that-be exuded."

Risk scores for Belgium, Estonia, Finland, France, Hungary and Poland, among others, were downgraded in 2016 due to a combination of economic, political and structural factors.

This occurred against the backdrop of depressed commodity prices and sovereign bond yields sinking to new lows. Prospects also dimmed for emerging markets as improved returns on US assets, following Trump’s victory, caused a sharp rise in capital outflow, including more than $11 billion worth of liquidated bond and equity holdings in Asian markets in November alone.

Low oil prices

Persistently low oil prices added a further complication to portfolio decision-making in 2016, resulting in large score declines for many of the world’s hydrocarbons exporters. 

Higher-risk Congo Republic crashed 23 places to 121st in the global rankings. Angola and Azerbaijan fell nine places each and there were also downgrades for Gabon, Saudi Arabia and near-bankrupt Venezuela, many of which also saw a spike in credit default swap spreads. 

review 6

With its more acute fiscal and external financing problems, Nigeria proved to be the biggest faller among the oil producers. Nigeria’s acute financing constraints are exacerbated by corruption and weaker institutions, prompting a big spike in risk for Africa’s largest economy.

Falling nine places in the rankings to 93rd, Nigeria is now just two points above a tier 5 rating, the lowest of ECR’s categories, containing Greece, Egypt, Pakistan, Ukraine, Zimbabwe and other high default risks.

Gregory Kronsten, head of macroeconomic and fixed income research at FBN Capital, says: "Nigeria’s outlook has deteriorated because the recovery in the oil price has not materialized and therefore the exchange-rate system, designed to be floating, is starved of the autonomous (non-central bank) inflows to make it work."

Notable exceptions

The balance of risk was undoubtedly skewed in 2016, resulting in more countries becoming riskier than safer, yet there were several notable exceptions moving up the risk rankings. Argentina registered one of the most impressive comebacks in recent years on the back of the presidential election victory of Mauricio Macri, overturning years of populist policymaking that had brought the country to the brink of another default.

review 7

The country is still rated a medium-to-high risk, with many difficult challenges ahead. However, Macri’s devotion to more orthodox policymaking and improving the transparency of Argentina’s statistics and institutions, a new inflation-targeting regime, a credible budget and better creditor relations, saw the country gain almost five risk points to rise 31 places in the rankings to 96th, moving from tier 5 to tier 4.

Among the other countries becoming safer in 2016 was Romania, with scores for its economic growth and unemployment situation improving as low interest rates, tax cuts and wage rises spurred domestic demand. The country can withstand some deterioration in the fiscal deficit thanks to a low debt burden compared with its peers.

Bulgaria’s risk profile also improved in 2016, pushing the sovereign borrower five places higher in the global rankings, above South Africa, Hungary and Turkey, to 60th, which raises the question why S&P still rates it sub-investment grade?


All five of Bulgaria’s economic risk factor scores were upgraded in 2016 and its capital access score, like Romania’s, also improved. Bulgaria’s favourable prospects are largely the result of the Bulgarian lev being pegged to the euro. The Sofia government is also handling the fiscal situation with great care, resulting in the general government deficit falling below 1% of GDP last year. There is very low inflation, strong growth, a current account surplus and sovereign debt has been held below 30% of GDP.

Surprisingly, Spain also improved last year, despite a persistent political crisis involving two elections that left the country without a government for almost the entire year. Spain’s economy continued to grow at a rapid pace, leading to a six-place rise in the risk rankings to 42nd place.

Although the delay to structural reforms caused by the political crisis led to a fall in Spain’s government finances score and several political risk indicators, Spain’s structural infrastructure score improved. There were upgrades to several economic indicators, including the growth and employment outlook as the labour market produced more jobs.

review 8


This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.



  • By Jeremy Weltman
  • 06 Jan 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 13 Mar 2017
1 JPMorgan 94,925.33 384 8.39%
2 Citi 87,531.58 331 7.74%
3 Bank of America Merrill Lynch 84,341.49 288 7.46%
4 Barclays 75,288.19 241 6.66%
5 Goldman Sachs 68,504.71 208 6.06%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 14 Mar 2017
1 Bank of America Merrill Lynch 10,650.87 23 11.13%
2 Deutsche Bank 8,169.49 17 8.53%
3 HSBC 6,243.46 23 6.52%
4 Citi 4,355.35 13 4.55%
5 SG Corporate & Investment Banking 4,273.37 17 4.46%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Apr 2017
1 JPMorgan 6,719.07 26 8.43%
2 Deutsche Bank 5,994.13 30 7.52%
3 UBS 5,678.69 26 7.12%
4 Citi 4,920.31 35 6.17%
5 Goldman Sachs 4,802.16 24 6.02%