Our coverage of the Americas this month includes a new report on Costa Rica, where the legislature continues to block tax reforms proposed by President Luis Guillermo Solís, even as the country pushes ever-closer to a full-blown fiscal crisis. The steady expansion of the budget deficit has prompted the downgrading of the country’s debt rating, but Solís has ignored calls to make deep cuts to spending on which numerous lawmakers have conditioned their support of tax increases. The report will examine the political factors that have thwarted attempts by successive administrations to boost tax revenues, and assess the prospects for a breakthrough on that front during the second half of Solís’ term, while also discussing the implications for the economy and the business climate if the impasse persists.
Turning to the Middle East and North Africa, PRS will issue a revised report on Kuwait, where budget strains produced by low oil prices have pressured the government to propose a number of significant fiscal reforms, including a 10% tax on corporations and deep cuts to spending on subsidies. Officials are also considering various ways to generate stronger interest on the part of foreign investors, focusing on changes aimed at reducing unit labor costs and easing equity restrictions. However, the legislative process has historically moved at a glacial pace in Kuwait, and the election of a pro-monarchy majority in mid-2013 has contributed to only limited improvement on that score. The report will assess the likelihood that any of the proposed measures might be implemented in the near term, and examine some of the other policy departures that can be expected as the government seeks to build momentum behind a program to reduce the country’s dependence on oil income.
Coverage of sub-Saharan Africa includes a report on Nigeria that provides an in-depth analysis of the mounting political difficulties faced by President Muhammadu Buhari’s one-year old administration as a result of depressed oil prices and the discovery of huge undisclosed losses at the state oil company. We assess the outlook for domestic stability amid pockets of growing, and sometimes, violent unrest, stemming in part from irregularities related to last year’s elections, rising food prices, and widespread fuel rationing. Our report looks at the challenges posed by a falling currency, economic weakness, rising unemployment, and soaring inflation, and what the trends portend for the implementation of structural reforms, as well as the direction of fiscal and monetary policy, with particular attention to the implications of an expansionary budget for 2016 that will only worsen an already deteriorating situation.
Over in Kenya, the political class has started gearing up for the August 2017 general election. Heated debates over the deeply entrenched corruption, the legal troubles of Vice President William Ruto, and the security threat posed by Islamist militants from Somalia’s Al Shabaab group are set to dominate the political landscape over the next year. President Uhuru Kenyatta is favored to win a second term in office, but intense jockeying for tribal and regional loyalties will again play a key role in the building of election coalitions. With real GDP growth of close to 6% forecast in 2016, Kenya’s economy remains one of the top performers on the continent, although the outlook is clouded by corruption, security concerns, and reduced tourism receipts. The start of the election season could also dampen the government’s appetite for carrying out public spending cuts as advised by the IMF. The Finance Ministry has already backtracked on plans to cut expenditure in the 2015/2016 budget, deciding instead to boost spending by $498.8 million, mostly to finance the Consolidated Fund and recurrent expenditure.
In West Europe, PRS will examine the impact of the European refugee crisis on the political climate in Germany, where the population is alarmed by the sheer magnitude of the influx of foreigners and Chancellor Angela Merkel has come under heavy criticism over her government’s asylum policy. Our report looks at what recent municipal and state level elections indicate about the mood of the electorate, and what this might deliver nationally with immigration-related concerns boosting the popularity of the populist right-wing Alternative for Germany, the rise of which PRS has flagged previously. Our report looks at the social and economic implications of Germany’s population surge, and examines the government’s broader plans for the remainder of the current term, and what the policy agenda means for economic growth, the labor market, fiscal trends, and the business environment as the country gears up for a general election in 2017.
Sweden proved to be one of Europe’s success stories in 2015, with its economy growing faster than many of its regional counterparts, but political risk has been heightened by the collapse of a cooperation agreement reached between the minority coalition government and the mainstream opposition parties with the aim of diminishing the influence of the far-right Sweden Democrats. Our report assesses the potential for the arrival of an unusually large number of asylum seekers to boost the popularity of the anti-immigration party, and what that means in terms of the potential for an early election and the perceived value of the country’s assets. Our update will also discuss the outlook for fiscal stability and the labor market, and assess whether the risks related to a housing and credit boom can be appropriately managed given the Riksbank’s reluctance to abandon its strong, expansionary monetary policy until the inflation target is met.
Over in East Europe, PRS’s coverage will feature a report on Russia, where political tensions are expected to rise in the coming months as the country prepares for legislative election due to be held later this year. President Vladimir Putin is counting on both a clear victory for his United Russia and a campaign free of the protests that marked the last elections. The president’s own popularity, his party’s access to state resources that are unavailable to the opposition, and recourse, if necessary, to repressive measures make it very likely that United Russia will emerge victorious, but Putin can take nothing for granted with oil prices remaining far below the $100-plus level that prevailed prior to the start of a deep slump in mid-2014 and the economy struggling to emerge from recession. Analysis will include an assessment of how the convergence of an economic downturn and the election cycle will affect both political risk and the business climate, and what the likely victory of United Russia this year and the similarly probable re-election of President Putin in March 2018 will mean for investment policy and domestic stability over the medium term.