Coming Soon in Our December 2020 Political Risk Reports

PRS’ coverage of the Americas this month includes post-election analyses of Jamaica and the Dominican Republic, along with an in-depth look at how next year’s elections figure to affect risk in Ecuador, where the outgoing government secured a lending agreement with the IMF that will enable it to proceed with a distressed debt exchange (DDE) involving some $17.4 billion of borrowing from private creditors. The restructuring deal has eliminated the near-term risk of default, but doubts about the sovereign’s medium-term creditworthiness will persist in the absence of a stronger recovery of oil prices and clear signals of the next government’s willingness to make the painful fiscal adjustment demanded by the IMF.

Although a large number of undecided voters creates the potential for victory by a dark-horse outside candidate, the current front-runners in the presidential contest are Andres Arauz, the candidate of a leftist-populist coalition led by allies for former President Rafael Correa, and Guillermo Lasso, a businessman and founder of the center-right CREO party. The report will discuss what factors could tip the presidential contest to either of the main candidates, and how various outcomes could affect political risk, considering that Arauz has already declared that he will not be bound by the conditionalities attached to the IMF lending agreement if he becomes president. The analysis will include a discussion of the near-term economic outlook and how that might influence voters.

Our two featured Western European countries this month are Denmark and Portugal. The Danish political scene has been rattled by a crisis surrounding the unlawful culling of mink after the fur industry was blamed for passing on to humans a variant strain of Covid-19 that might weaken the effectiveness of the first vaccines that are about to be rolled out worldwide. Despite this, and the C-19 related economic shock and fiscal deterioration endured in 2020, Denmark’s investor outlook continues to be underpinned by its institutional strengths, among other notable risk factors we look into in detail while identifying any further political risks investors should stay abreast of. Our other report Portugal, meanwhile, tries to ascertain if the same is true of Portugal given its history of debt and partial trade dependence on Spain where the crisis has hit the country hard. As well as looking into some of the obvious effects of the crisis on tourism and economic growth generally, as well as the labor market and fiscal sustainability, our report evaluates recent political developments, including the furor surrounding the decision to provide more emergency funding for Novo Banco, which is sure to rattle on into the new year involving a triangulated political ‘tug-o-war’ between the minority government, its support partners and the opposition. Our report also looks at why the benchmark 10-year Portuguese sovereign bond yield has turned negative recently for the first time despite a projected debt burden exceeding 130% of GDP at the end of this year, and whether the market rally is sustainable. Our report rounds out with economic projections for 2021, covering a range of variables that are indispensable for investor decision making.

Coverage of Eastern Europe will include reports on Russia and the Czech Republic, where the strong showing of Andrej Babis’ center-right ANO at regional and Senate elections held in early October has emboldened the prime minister to test the tolerance of his left-leaning coalition partners. Babis’ plan to secure approval of a massive tax cut with the support of opposition parties backfired when the lower house approved an expanded tax cut that increased the projected cost from 1.3% of GDP to more than 2% of GDP, forcing Finance Minister Alena Schillerova to plead with the Senate to scale back the measure.

The report will focus on the implications of the tax cut for fiscal risk in light of the economic uncertainty created by a recent surge in COVID-19 cases and the government’s broader budget strategy ahead of parliamentary elections that fall due next year. PRS will also assess the potential for ANO’s expected victory to create an obstacle to forming a viable majority government if Babis continues to alienate his current partners.

Turning to the Middle East and North Africa, the roster for December includes updates on Iraq and Tunisia, where a recent change of prime ministers necessitated by conflict-of-interest allegations against Elyes Fakhfakh laid bare a building power struggle between the Parliament and President Kais Saied, who prefers a system of governance dominated by the president and sought to install a prime minister who would follow his directives. The confirmation of Hichem Mechichi as prime minister in early September represents a defeat for Saied, but the main parties are displeased with their lack of influence within the technocrat-dominated Cabinet. As such, the new government faces both the possibility of deliberate efforts by the president to undermine his authority and an ever-present risk of abandonment by the parliamentary parties that only backed him to thwart the political designs of Saied. The report will discuss the challenges facing the new government as it grapples with the task of repairing and reviving an economy badly damaged by the fallout from the COVID-19 pandemic, and assess the prospects for success in light of the political constraints created by the struggle for control over executive power.

Our coverage of sub-Saharan Africa this month includes timely reports on Cameroon and Zimbabwe, as well as Angola where we look at the risks facing investors in this important oil-producing nation in light of the Covid-19 crisis. As well as keeping commodity prices down, and starving the government of much-needed revenue, the country has been experiencing social tensions and protests recently, principally due to the rise in unemployment and the cost of living, but also reflecting a wider range of grievances. These include unaddressed corruption and the diminution of political and personal freedoms, not least the delay in staging the country’s first ever municipal elections, which many suspect is not entirely due to the pandemic, but is symptomatic of institutional indifference causing the failure to pass necessary legislation through the National Assembly so as to protect the top-down power exercised by the country’s elite. Our report looks at oil market developments, and government financing, outlining the likely paths for key macro-fiscal variables, including what has been so far a persistent lack of growth and rampant inflation, to assess whether the country can return to self-sufficiency without emergency creditor support. Also in our focus on what lies ahead in 2021, we assess how this will all impact on the exchange rate and longer-term asset quality in a country which had been exciting investors when the near four-decade fiefdom of Jose Eduardo Dos Santos was finally brought to a conclusion in 2017.

Our coverage of Asia this month includes a report on Indonesia as well as one on Thailand, another key emerging market in the region where the political temperature is rising as we assess where the country is heading following the emergence of a new student-led popular protest movement establishing itself as the main opposition force to the undemocratic existence of a military-influenced government and untouchable monarchy. Our report looks at the protestors’ key demands, whether they have any traction, and how the situation is likely to play out in a country well used to political turmoil and coup d’états given similar defiance by pro-democracy activists in Hong Kong. With that in mind, we look at the stability of the present regime in the light of resignations from cabinet and calls for the retired General, Prayuth Chan-och-a, to relinquish his grip on the office of Prime Minister, which he is presently able to resist thanks to a compliant legislature and judiciary, and the backing of a cozy network of conservative allies controlling big business. Our report goes on to discover how the Covid-19 shock is affecting Thailand’s macro-fiscal picture, and we provide our expert opinion on the likely direction of the baht in the wake of its recent appreciation undermining export competitiveness.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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