Euromoney Country Risk June 2011 results: MENA and Eurozone slide in global rankings

The increased risk of a global slowdown result in little movement at the top of the Euromoney Country Risk table, where the world’s favourite safe havens remain the Nordic countries, Singapore and Switzerland.

MENA down: political unrest casts gloom over entire region

The fear of political contagion in the MENA Region remains foremost in minds of economists. Continued political unrest in Libya, Syria, Egypt and Bahrain has had political and economic repercussions for all countries in the Middle East. The MENA region average score is down by 2.6 points, a cumulative fall of 8 points since January 2011.

The re-rating of Middle Eastern countries by ECR analysts was not restricted to countries experiencing mass protests among the civilian population or, as in Libya, outright civil war. Fears of political contagion are also affecting Qatar (down 7), Morocco (down 6), Jordan (down 1) and Iraq (down 10). In the MENA region, only Israel and Iran held their positions over the quarter.

Ayah El Said, an analyst at Roubini Global Economics, says: “Qatar’s reduced ECR score is surprising. There have been few hints of political unrest in the emirate, and we expect the economy to be the fastest growing in the region in the next two to three years.”

Bahrain ECR score: October 2010-June 2011

Source: Euromoney Country Risk

Bahrain now ranks 54^th in the table, 17 places below its peak. The kingdom, which economists had previously ranked alongside Spain, Saudi Arabia and Malaysia in the table, needed $10 billion of financial support from the Gulf Co-operation Council in March to avert a financial crisis after mass demonstrations in March.

But political unrest in the country is far from over. The lifting of emergency laws on June 1 was immediately followed by clashes between security forces and protesters. King Hamad has called for a national dialogue to begin on July 1, but opposition parties warn that discussions cannot take place without concessions over political reform. “Bahrain remains vulnerable to unrest among the civilian population, and we expect to see more flashpoints during the second half of 2011,” says Said.

The military intervention in Bahrain by Saudi security forces on March 14 also increased tensions between Saudi Arabia (down three places) and Iran (unchanged). Meir Javedanfar, founder of the Middle East Economic and Political Analysis Company (MEEPAS), says: “The entry of Saudi armed forces into Bahrain has opened a new phase in the cold war between Saudi Arabia and Iran, and has intensified the conflict between the two. The repercussions will be felt in the region for years to come.”

Egypt falls by one place to 96^th in the overall table, a cumulative fall of 24 places since January. Egypt now has a lower survey score than Lebanon, Nigeria and Venezuela. The results could indicate a potential overcorrection by economists. CDS spreads on 5-year sovereign debt have been on a downward trend since May, while the country remains relatively stable. The Supreme Military Council has demonstrated a willingness to co-operate with secular opposition movements. The IMF’s decision to grant a $3 billion standby credit facility is a further boost to the beleaguered country.

Said points out that “significant political developments have occurred [in Egypt]: the creation of new political parties, the constitutional referendum vote, dissolving the National Democratic Party and announcements by key figures of their plans to run for the presidential election – most notably Mohamed El Baradei and Amr Moussa”.

But she warns: “The transition will be messy if things continue at their current pace, with dire economic repercussions that could further hamper the transition phase.”

Syria (down 5), Libya (down 48) and Yemen (down 26) have each country has received negative re-ratings from economists during the second quarter. Syria’s ECR ranking has now fallen below Pakistan’s, while Libya’s political risk score (21.1) falls below Yemen’s (25.2).

Eurozone struggles under weight of Greek debt but Ireland is up

ECR scores across the Eurozone periphery continue to slide: re-ratings continue for Greece (- 2.7 points), Portugal (-0.62 points), Italy (-0.6 points), Cyprus (-1.5 points) and Spain (-0.16 points). However, the average ECR score for EU member states falls by only -0.2 points over the quarter, supported by higher than expected economic growth figures in the first three months of 2011. Ireland shows signs of recovery, rising by 4 places in the table.

Spain falls by one place in the table, as economists stay negative over the country’s

political stability and Spanish banks’ deep exposure to the construction sector.

Nicholas Spiro, of Spiro Sovereign Strategy, says: “The scores reflect the two-tiered state of the Eurozone economy and debt market. Spanish debt has become the yardstick against which the severity and consequences of the debt crisis are measured.”

He adds: “The scores for the peripheral economies are unlikely to recover [yet], for the simple reason that the crisis is far from over. Most of the deleveraging in the periphery has just begun.”