Country risk review 2016: Populism is risky

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

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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.


Italy’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.


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.