Announcements Criteria Research

GCR Lowers 16 Country Risk Scores as Global Challenges Mount

Country Risk Score Action

GCR has lowered the public country risk scores on 16 countries to reflect the unprecedented ongoing direct and indirect impact of the COVID-19 pandemic. GCR concurrently updated the Country Risk Scores publication.

  • Republic of Botswana, Country Risk Score lowered to 9.0 from 9.25
  • Republic of Burkina Faso, Country Risk Score lowered to 3.0 from 3.5.
  • Republic of Cameroon, Country Risk Score lowered to 3.25 from 3.75.
  • Republic of Cote D’Ivoire, Country Risk Score lowered to 4.5 from 5.0.
  • Arab Republic of Egypt, Country Risk Score lowered to 3.75 from 4.0.
  • Republic of Ghana, Country Risk Score lowered to 3.5 from 3.75.
  • Republic of Kenya, Country Risk Score lowered to 4.0 from 4.5.
  • Republic of Mauritius, Country Risk Score lowered to 8.75 from 9.25.
  • Republic of Namibia, Country Risk Score lowered to 5.5 from 5.75.
  • Republic of the Philippines, Country Risk Score lowered to 8.5 from 9.0.
  • Republic of Rwanda, Country Risk Score lowered to 3.75 from 4.25.
  • Republic of South Africa, Country Risk Score lowered to 7.0 from 7.5.
  • Kingdom of Spain, Country Risk lowered to 10.5 from 11.0.
  • United Republic of Tanzania, Country Risk Score lowered to 3.75 from 4.0.
  • Republic of Uganda, Country Risk Score lowered to 3.25 from 3.5.
  • United States of America, Country Risk Score lowered to 14.75 from 15.0.

GCR maintained the Country Risk Scores and mapping tables (where applicable) for the countries not mentioned above.

GCR will periodically publish updated “Country Risk Scores”, which will supersede previous publications. The publication titled “Country Risk Scores, 27 May 2020”, available at https://gcrratings.com/risk-scores/, supersedes the publication “Country Risk Scores, 7 May 2020”.

Rationale

2020 has all the makings as a modern ‘annus horribilis’ for the global economy. To support this, the World Bank recently forecasted a global economic recession, with a number of the world’s largest economies shrinking by mid-single digit numbers in 2020. In regards to the Sub-Saharan African (SSA) region, the Institute for International Finance (IIF) believe that ‘significant output contractions in the two largest (regional) economies—2.9% in Nigeria and 4.7% in South Africa—mean that the region as a whole will slip into a recession for the first time since the early 1990s’.

At the sharp end of the unfolding crisis is a global pandemic named COVID-19, which according to John Hopkins University, has over 5.5mln confirmed cases and resulted in over 350,000 deaths. Unfortunately, the toll is likely to be manifold this number. To compound the pandemic risk, 2020 has also seen an oil price war and rising geopolitical tensions.

Due to the severity of the rolling shocks, GCR expects the economic slowdown to be largely universal. However, each country is being affected in a different manner, none more so than in developing countries.

For the Sub-Saharan region, levels of recorded COVID-19 contagion have been modest in comparison to other (more developed) regions, a result of early lock-downs, less international access and a lack of screening/testing. We are factoring in continued slower growth of the contagion in 2020, which will put strain on inadequate health infrastructure across the continent, but on the whole for SSA to continue to comparing quite well to other regions.

As a result, GCR currently believe that the macro-economic risks facing the continent to be the most relevant short-term risk for the SSA region. For example, the World Bank believe that remittances could reduce by 20% in 2020, which could increase poverty and pressurise exchange rates in a number of developing countries. Furthermore, government directed lockdowns are pressuring employment and eradicating short-term consumption led growth for more developed countries (such as South Africa). Furthermore, tourism (Mauritius/ Rwanda and South Africa) is unlikely to recover in the next 12 months, exports to key trading partners will reduce and private sector investment across the board has reduced. According to the IIF, global investors have already removed over USD100bln from emerging markets since Jan’21st 2020. To compound the pandemic risks, low commodity prices (resulting from oil price wars and the unfolding global recession) represents a significant risk to government revenues and exacerbates current account deficits for many countries in the region. Lastly, locust infestations could seriously bring down agricultural output and increase the risk of famine across East Africa.

Unfortunately, most countries in the Sub-Saharan region do not have the deep policy options (relative to developed markets) to shelter their economies/ populations in the short-term or drive economic recoveries going forward, without external support. Positively, the IMF have made funds available to help with the funding gaps and increasing external risks. As a result, we don’t forecast the global pandemic becoming a sovereign debt or balance of payments crisis in the region. However, we are factoring in increasing sovereign risk (through fiscal or external risks) across the region for most countries over the longer-term.

Ultimately, we expect 2020 to be an unprecedently difficult year, globally, with economic growth reducing and sovereign risks increasing. Nevertheless, we have prioritised, in this action, the country risk scores for those countries with a significant amount of contagion and/ or where growth will be most materially affected or those whose previously sound robust fiscal/ external buffers could be threatened by reduced commodity or trade prices.

The below scoring also somewhat reflects an economic recovery in 2021, which relies on the pandemic being controlled by the end of 2020 or early 2021, but also that the global recession doesn’t take hold over a longer period and that key trading partners (such as China) or remittances markets (such as the U.S or Europe) recover somewhat. If this scenario doesn’t materialise, country risk scores could come down further. We could also take further negative actions if the fiscal or external risks are not well controlled, which will be assessed on a case by case basis.

As a result, the public country risk scores have been adjusted on the following countries:

Republic of Botswana, Country Risk Score lowered to 9.0 from 9.25. Mapping Table 9.0 to 9.5 (unchanged).

Botswana’s country risk score of ‘9.0’ balances its relatively good wealth levels and strong institutional scores versus regional peers, alongside the government’s strong fiscal and external positions, against the small and concentrated nature of the economy. We also factor in a reduction in economic growth in the short-term and pressure points in various externally reliant sectors.

Republic of Burkina Faso, Country Risk Score lowered to 3.0 from 3.5. Mapping Table changed to 2.5 to 3.0.

The Burkina Faso country risk score of ‘3.0’ balances the low wealth levels and above average governance indicators with the ongoing security issues in the country. We are currently balancing our expectation of lower economic growth in 2020 and modest fiscal strength of the government, with longer-term stronger growth expectations.

Republic of Cameroon, Country Risk Score lowered to 3.25 from 3.75. Mapping Table changed to 3.0 to 3.5.

The Cameroon country risk score of ‘3.25’ reflects the moderate wealth levels of the country and relatively weak institutional strength, especially from perceptions of corruption and weaknesses in the political sphere. We anticipate that economic growth will be significantly affected by COVID-19 and the reduction in business activity.

Republic of Cote D’Ivoire, Country Risk Score lowered to 4.5 from 5.0, Mapping Table changed to 4.5 to 5.0.

The Côte d’Ivoire country risk score of ‘4.5’ balances the modest wealth levels and average institutional strengths of the country versus the region, and the modest fiscal and external risks of the sovereign. We expect near term economic growth to be low, which could exacerbate the growing government debt stock and fiscal deficits. However, over the longer-term we expect economic growth to return to stronger levels.

Arab Republic of Egypt, Country Risk Score lowered to 3.75 from 4.0. Mapping Table changed to 3.5 to 4.0.

The Egyptian country risk score of ‘3.75’ reflects the GDP per capita of around USD2,500 and expectations that the COVID-19 pandemic will bring down economic growth and business activity materially for the next 12 months. It also balances the relatively large size of the market and good infrastructure with the low political stability, voice & accountability. Lastly, GCR factors in the restrained fiscal position of the Egyptian government, due to its very high levels of indebtedness.

Republic of Ghana, Country Risk Score lowered to 3.50 from 3.75. Mapping Table 3.5 to 4.0 (unchanged).

The Ghana country risk score of ‘3.5’ is supported by above average institutional strength scores for the sub-Saharan region and slightly above average regional wealth levels, with a good track-record of economic growth. We expect economic growth to reduce to around 2% in 2020 due to the COVID-19 pandemic and oil price contraction. The score is also restrained by the relatively weaker fiscal and external position of the sovereign, both of which are expected to deteriorate in the next 12 months.

Republic of Kenya, Country Risk Score lowered to 4.0 from 4.5. Mapping Table changed to 4.0 to 4.5.

Kenya’s country risk score of ‘4.0’ balances its position as a regional hub, the low wealth economy, with improving institutional effectiveness, dampened economic growth and growing fiscal pressures at government level. GCR expect GDP per capita to range around USD2,000 and GDP growth of around 1% for the next 12-18 months. The institutional score is supported by the vitality of the private sector, whereas politics and corruption weigh the score down. GCR believe the Kenyan sovereign’s fiscal position will continue to deteriorate over the next 12-18 months, as spending increases are not matched by revenues.

Republic of Mauritius, Country Risk Score lowered to 8.75 from 9.25. Mapping Table changed to 8.5 to 9.0.

The Mauritius country risk score of ‘8.75’ reflects its GDP per capita of around USD10,000 and strong institutions in a regional context, including generally good political stability. GCR also encompass a degree of the country’s growing economic diversification and infrastructure, alongside a moderately strong external position. However, the score has been moderated by the modest 2020 growth prospects and lower tourism receipts.

Republic of Namibia, Country Risk Score lowered to 5.5 from 5.75. Mapping Table 5.5 to 6.0 (unchanged).

The Namibian country risk score of ‘5.5’, is supported by above average wealth levels and institutional strengths of the country in comparison to regional peers. The scores are restrained by the continued weak economic growth, limited monetary policy flexibility and mounting government fiscal pressures.

Republic of the Philippines, Country Risk Score lowered to 8.5 from 9.0. Mapping Table changed to 8.5 to 9.0.

The Philippines Country Risk score of ‘8.5’ balances the large size of the market and moderately strong financial position of the sovereign versus the low wealth levels and modest institutional strengths, on a global peer comparison. We have lowered the adjustment for economic growth in 2020, to reflect the impact of COVID-19.

Republic of Rwanda, Country Risk Score lowered to 3.75 from 4.25. Mapping Table changed to 3.5 to 4.0.

The Rwandan Country Risk Score of ‘3.75’ balances the low wealth levels with above average institutional scores, underpinned by perceptions of better control of corruption than regional peers. We are factoring in limited growth in 2020, of around 2%, but a return to rapid growth in the longer-term. However, in the short-term, we are expecting the external and fiscal risk of government to increase materially. In particular we see risks in the tourism, conferencing and services areas of the economy.

Republic of South Africa, Country Risk Score lowered to 7.0 from 7.5. Mapping Table changed to 7.0 to 7.5.

The South Africa country risk score of ‘7.0’ reflects GCR expectations that GDP per capita will range between USD6,000 and USD6,500 over the next 12-18 months, balancing deeply negative economic growth in the short term due to COVID-19, with more modest projections over the medium/ long term with stable population growth and continued pressure on the local currency. It also factors in institutional scores in the middle of the range, supported by voice & accountability and regulatory quality, macro-economic stability, infrastructure and the strengths of the financial system. Corruption and politics, innovation and health are the detracting elements of institutional strength for the country. GCR have made a small positive adjustment to the initial score, balancing the size and diversification of the South African economy versus regional peers and strong monetary policy flexibility against the rapidly deteriorating fiscal position of the government and high profile SOEs.

Kingdom of Spain, Country Risk Score lowered to 10.5 from 11.0. No Mapping Table.

Spain’s Country Risk score of ‘10.5’ benefits from its good levels of wealth and robust institutions on a global comparison. However, the score is restrained by high levels of domestic unemployment (c.20%), alongside expectations that the economy will shrink by low double digits in 2020 and the government’s fiscal position will materially worsen.

United Republic of Tanzania, Country Risk Score lowered to 3.75 from 4.0. Mapping Table 3.5 to 4.0.

The Tanzania country risk score of ‘3.75’, balances a GDP per capita of around USD1,000, moderately high economic performance restrained by COVID-19 in the short-term, with average institutional strengths of the country versus regional peers.

Republic of Uganda, Country Risk Score lowered to 3.25 from 3.5. Mapping Table 3.0 to 3.50.

The Ugandan country risk score of ‘3.25’ reflects its low wealth levels and institutional strengths in-line with regional peers. The score is restrained by moderate external /fiscal pressures facing the government. We believe growth will be moderated in the short term due to the pandemic but still remain positive over the longer term.

United States of America, Country Risk Score lowered to 14.75 from 15.0. No Mapping Table.

The United States of America’s country risk score of ‘14.75’, reflects its zenith position in the global economy. The positive factors include its size, diversification and strong institutional scores, plus the role of the U.S. Dollar as the premier global currency. On the other hand, the twin deficits are high. Furthermore, COVID-19 has been significant in the US, with 1.5mln confirmed cases and over 80,000 deaths. As a result, we expect significant negative economic growth over 2020 with unemployment at 15%, the highest levels since the Great Depression.

Uses & Application of GCR Country Risk Assessment

The GCR Country Risk assessment interacts with GCR ratings in four ways. Firstly, the country risk scores create the foundation for the Anchor Credit Evaluator (the mapping table, see the Criteria for the GCR Ratings Framework and the interactive online map at GCRratings.com/criteria). Secondly, the country risk score is a key part of the GCR operating environment score, and therefore ultimately to the GCR issuer ratings. Thirdly, the country risk assessment acts as a hurdle (or more accurately as a series of hurdles, differing according to industry) that limits uplift away from an entity’s financial sector operating environment (the combination of the country risk score and the financial sector risk score). Fourthly, the country risk score provides a level from which government support can be applied for each industry.

As a result, a reduction in the Country Risk Score could lead to the lowering of an international scale rating, although it is less likely to change national scale rating relativities (see the GCR Ratings Framework for more information).

We anticipate to review all affected ratings within the next four to six weeks. Typically, we anticipate minimal changes on national scale ratings due to country risk score changes. International scale ratings are statistically more likely to be impacted.

Country Risk Scores are available for download at GCRratings.com/risk-scores.

Analytical contacts

Primary analyst

Corné Els

Senior Structured Finance & Securitisation Analyst

Johannesburg, South Africa

CorneE@GCRratings.com

+27 11 784 1771

     

Primary analyst

Matthew Pirnie

Group Head of Ratings

Johannesburg, South Africa

MatthewP@GCRratings.com

+27 11 784 1771

Related criteria and research

Criteria for the GCR Ratings Framework, May 2019

Country Risk Scores, 27 May 2020

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