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ECR Survey Results Q2 2011: MENA and Eurozone slide in global rankings

Country risk rankings are dropping sharply in the Eurozone periphery and across the entire Middle East, including Qatar which had been viewed as relatively immune to the fallout from the Arab Spring. Andrew Mortimer reports.

Qatar falls 7 places in the June results of the Euromoney Country RIsk survey as contagion fears spread across the Middle East. Fears of political contagion are also affecting Morocco, Jordan and Iraq. The Eurozone falls further in the table but shows some resistance after positive growth figures, while Ireland recovers 4 places in the table. 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

MENA: ECR June 2011 survey

Ave rank change vs March 2011

Ave rank change vs Sept 2010

Ave score change vs March 2011

Ave score change vs Sept 2010

MENA Average





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 54th 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 96th 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 June 2011 survey, key trends


Rank change vs March

Score change vs March






















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.”

Greece falls a further 5 places, after falling 11 places in the first quarter of 2011. The country is now 70th in the global table. Despite this all time low, further deterioration is likely as the Greek domestic banking sector has the single largest exposure to its sovereign – approximately €90 billion ($132 billion).

But Ireland’s score is on the rise: the country is up four places in the table due to a score improvement of 1.05 points, Ebrahim Rabhari, an economist at Citigroup, says: “With the election out of the way and with the latest round of bank recapitalisations completed, Ireland is in better shape than in the previous quarter. Significant headwinds remain, but it looks as though Ireland may be close to turning a corner.”

Greece casts a long shadow over Cyprus, whose score falls by 1.5 points. Scores for bank stability, government finances and regulatory policy are falling due to the Cypriot banking sector’s large exposure to mainland Greece. “Cyprus is well past the point where it could decouple from the Greek crisis,” says Panicos Demetriades, Professor of Economics at the University of Leicester. “The creation by the government of a financial stability fund is too little, too late.”

Italy falls one place in the ECR table and Belgium's ECR score continue its slide. Belgium has now been without a government for eight months and was put on negative outlook by Fitch in May, while slowing growth in Italy provided a trigger for S&P to put the sovereign’s foreign-currency debt rating on a negative outlook the same week. “The outlook for Italy, and possibly Belgium, hinges on a meaningful resolution to the crisis and, in the case of Italy, the implementation of structural reforms,” says Spiro. “Both of these preconditions are in doubt.”

Japan trends down but largely unaffected by earthquake

Japan falls by only one place to 26th in the ECR table following the earthquake and tsunami in March. Given that it had fallen by 7.24 points from September 2010 to March 2011, experts clearly feel that the earthquake, although tragic on a humanitarian scale, has not deeply affected the overall situation in Japan. ECR scores for economic outlook, bank stability and government stability all fell during the quarter.

Kazuya Murakami, an analyst at Sumitomo Trust and Banking Company, says: “The Japanese economy has shown remarkable resilience since the earthquake. The private sector is recovering strongly, and I forecast that strong domestic demand and investment will result in higher-than-expected growth in the second half of 2011.”

But he adds: “I do not think the government has handled the crisis well, because of a lack of political leadership.”

BRICs: inflation troubles

BRICs: ECR June 2011 Survey


Rank Change vs March

Score Change vs March













China retains its position as the highest-rated BRIC economy during the quarter, remaining unchanged at 40th in the table. Brazil (43), India (53) and Russia (58) kept their relative positions in the table behind China.

But scores for monetary policy and economic outlook are falling in each of the BRIC economies, as central banks battled to contain the inflationary pressures of high oil and food prices and expansive fiscal policy. Natalia Gurushina, an analyst at Roubini Global Economics, says: “In each of the BRICs, more support is required from government to combat inflation.”

Brazil falls two places in the table, with declining scores for government finances, monetary policy and economic outlook, after inflation picked up to 6.5%. “President [Dilma] Rousseff has taken steps to control government expenditures, but her administration has yet to face significant challenges,” says Bret Rosen, an analyst at Standard Chartered.

Gurushina adds that “transfer spending in Brazil is inflationary and far too generous considering the country’s present stage of development and demographics”.

India falls by one place in the table. Before unveiling the 2011-12 budget in March, Pranab Mukherjee, India’s finance minister, said that removal of crippling supply bottlenecks in the agriculture sector would be his “focus” in the coming fiscal year. Yet economists remain unimpressed by the high levels of subsidies and social spending that remained in the Finance Ministry’s plan. “Government spending still focuses on demand-enhancing social spending rather than investment,” says Gurushina.

India’s political risk score fell during the quarter, as analysts pondered the implications of the recent corruption scandals surrounding the Commonwealth Games and the auction of mobile communication network rights. Janis Huebner, an economist at Deka Bank, says: “Out of all the countries in our coverage, India receives the lowest score for corruption. It is a problem that will be with us for at least the next few years.”

Russia falls by one place in the table. Although the country stands to benefit the most from high global oil prices, analysts remain unconvinced by the country’s risk profile. Gurushina says: “The high oil price is a structural curse on the Russian economy, bringing little incentive for fiscal reform. Like India, Russia’s public spending goes towards high wages and pensions, rather than the country’s significant infrastructure bottleneck.”

The country’s political risk score fell for a second quarter in succession, highlighting the Russian state’s perceived failure to respect property rights and tackle public sector corruption.

US and UK show little movement

Both the US and UK are struggling to make an impact on the table in 2011. The US remains unchanged at 15th in the Euromoney Country Risk rankings, while the UK falls by one place to 18th. Sluggish growth, high inflation and high levels of government debt continued to weigh on the ratings for both countries.

“The UK was one of the few economies that got serious on fiscal consolidation before the markets did,” says Rabhari. “However, with very few domestic demand drivers present, we think that the UK will continue on a low-growth trajectory for some time.” In the US, the political deadlock in Washington led to the country’s top-tier credit rating being put on negative watch by Moody’s and S&P.

Latin America strengthens with Colombia and Chile the star performers  

Latin America Top 5:

ECR June survey


Rank (June 2011)

Change vs March 2011
















The standout performers in Latin America are Colombia and Chile. Chile rises six places to 22nd in the table, climbing above established markets such as the Czech and Slovak Republics, South Korea and Japan. Rosen says: “Despite several changes of government in the past two decades, Chile has managed to maintain consistent monetary and fiscal policies. This has contributed to Chile having the best debt ratios of any sovereign in Latin America.”

He adds, “Chile’s economic rebound since last year’s earthquake has only served to illustrate the resilience of the economy.”

A rare combination of strong economic growth and falling inflation has helped Colombia to outperform its Latin American peers in the latest results of the Euromoney Country Risk survey. The country, which was recently upgraded to investment grade by Moody’s, climbed 4 places in the table and now places higher than Mexico in the ECR table.

“The improved security situation in Colombia has resulted in foreign direct investment increasing markedly in recent years,” say Rosen. “The central bank has done a good job keeping inflation under control during the country’s higher than expected economic growth, while the Ministry of Finance is highly regarded by investors.”

The average change in Latin America saw a slight increase of 0.43 on the whole.

Asia: Taiwan and Malaysia excel

Taiwan climbs two places to 16th, its highest ever position in the ECR table. The island overtakes the UK and France and is now the third-ranked Asian country in the table, after Singapore and Hong Kong.

The improvement follows a surge in economic activity following the ratification of the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China in June 2010. The agreement opens up a number of Chinese markets directly to Taiwanese goods and services. Cheng Mount Cheng, an economist at Citibank, says: “Lower production and export tariffs, constant dialogue between politicians and an open-door policy to the movement of people and goods will increasingly benefit the Taiwanese economy.”

Elsewhere in Asia, Malaysia climbs three places in the latest results. The country received increased scores for bank stability and government finances, while its overall political risk score rose by 3.5 points. James Gillard, an analyst at A M Best, says: “Malaysia’s risk profile has improved in recent years, and economists have appropriately placed the country ahead of Thailand, Indonesia and the Philippines in the June survey. Economic reforms have improved the prospects as well as the stability of the economy, while the strong policy response during and after the global financial crisis demonstrated the ongoing improvements.”

Asia saw a nearly imperceptible decrease of 0.2 points overall.

Central and Eastern Europe: Czech Republic and Slovenia rise  

CEE Top 5: ECR June 2011 survey


Rank (June 2011)

Change vs March 2011







Czech Rep



Slovak Rep






Slovenia rises five places in the ECR table. The country has benefited from its membership of the euro and strong domestic institutions to become the second-ranked country in ECR’s Central and Eastern European survey, after Cyprus. The country’s economic score improved by 1.5 points during the quarter, while its score for political risk section has now converged with the western European average. Ales Pustovrh, founder of Bogatin, a research boutique, says: “Slovenia’s structurally sound economy, centred on a high-value-added export sector, is in many ways comparable to Austria’s.”

But he adds: “The country’s policy makers must make further reforms to the country’s banking sector, in which the state remain the dominant player.”

The Czech Republic rises by one place in the rankings to 23rd in the table, consolidating its position as a front-ranked CEE economy. Driven by close ties to Germany’s export machine, the economy grew by 2.6% at the end of 2010, with the OECD predicting 4% growth in 2011.

The Czech centre-right coalition government has pushed ahead with its programme of fiscal consolidation, winning the praise of the IMF. The ratio of public debt to GDP has risen since the global financial crisis but was still a manageable 40% of GDP at end-2010. Daniel Lenz, head of emerging markets strategy at DZ Bank, says: “Investors increasingly view the Czech Republic as a core rather than peripheral European nation.”

Africa ascendant

The top performers in Sub-Saharan Africa were Botswana (up 10) and Ghana (up two). A long-running favourite of ECR analysts, Botswana has benefited from high mineral prices and a stable political backdrop. Ghana’s score rose further as economists weighed the potential benefits to the economy of six months of continuous oil production. Nigeria’s ECR score (unchanged) saw its upward trend checked since the recent election season, which saw Goodluck Jonathan returned to office as president.

South Africa falls by two places in the ECR table. The country’s ECR ranking has fallen steadily in recent months. Analysts have forecast that the country, which suffers both high unemployment and a high real wage rate, faces a summer of discontent as politicians and unions clash over pay. Nesh Dinat, an analyst at Africa Risk Consulting says: “The ANC is still by far the dominant political party country-wide and in most metropolitan areas, but it is increasingly trading on its past achievements and lacks a credible vision of the future.”

He adds: “Domestic politics during the summer will be dominated by the ANC’s continuing battle with the trade unions over public wage increases, with strikes the likely result. Expect a lot of rhetoric and political noise during this period. ”

View the full results of the June ECR survey on

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