Euromoney Country Risk Euromoney Country Risk Survey | Page 5

Country Risk:

In search of the next investment-grade sovereign

Nigeria and Mexico, two of the more populous, rapidly expanding frontier markets – part of the new Mint group
(the next four largest investor hotspots beyond the Brics including Indonesia and Turkey) – were among the
noteworthy improvers. Mexico ended the year four places higher and less than four points from tier-two
double-A status, while Nigeria’s rating also improved sharply over the year.
By contrast, Brazil, India, Turkey and Indonesia were the big losers in 2013, with their current account deficits
considered more vulnerable to capital outflows. All four were downgraded sharply by country-risk experts
in 2013.
G10 weakened by eurozone tail risks
Europe’s debt problems continued to negatively affect the G10 grouping of leading industrialized nations last
year. Whereas Germany and Switzerland withstood the rising risk trend with their robust fiscal balances, others,
including the UK, France and Italy, were all downgraded by experts worried about rising debt burdens and slow
or no growth at all.
Italy is the worst performer of all, having seen double-digit declines in its country score since 2010. Analysts
remain bearish as Italy’s debt restructuring programme makes minimal progress, while the possibility of early
elections only increase political risk.
By contrast, the two largest G10 economies performed rather better overall. Economic growth continued in
the United States, while the risks surrounding the partial government shutdown were alleviated by a temporary
suspension to the debt ceiling. Japan climbed four places as reflationary policies saw economic conditions
begin to improve.
However, with doubts creeping in, both countries saw risks increase again during Q4: the US debt limit
suspension due to end on February 7 creates another focal point for its creditworthiness. Japan’s revival is
also waning, according to the latest data.
Eurozone periphery still fuelling anxiety
ECR scores for Ireland, Portugal and Spain finally stabilized last year, but at low levels with the very weak
regional economy keeping many countries in recession and unemployment rates at unprecedented levels in
2013. More than a quarter of the Greek and Spanish labour forces were without work, nudging the eurozone
average above 12%.
Concerns about the eurozone shifted from the so-called PIIGs to smaller ‘offshore’ centres such as Cyprus,
Slovenia, and to a lesser extent Malta, as the crisis mutated in 2013.
ECR expert and independent consultant, Norbert Gaillard, says: “Additional debt restructuring in Cyprus is likely
in the short/medium term. The debt-to-GDP ratio for 2014 should be twice its 2010 level (130.5% vs 61.3%).

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