Coming Soon in Our May 2021 Political Risk Reports

PRS’ coverage of the Americas this month includes updates on Haiti and Trinidad & Tobago, and a fully revised report on the Dominican Republic, where President Luis Abinader is encountering obstacles to fulfilling some of the campaign pledges that enabled his Modern Revolutionary Party (PRM) to end the 16-year reign of the Dominican Liberation Party at elections held last July. Resistance to reform of the deeply corrupt security apparatus points to a risk of an institutional turf war that impedes efforts to reduce violent crime, which is a significant deterrent to foreign investment. As for Abinader’s pledge to improve living standards, progress on that front awaits the abatement of the COVID-19 crisis, which has persisted sufficiently to necessitate the repeated extension of a state of emergency that was initiated in March 2020 and is currently set to expire at the end of May.

The report will include an assessment of the current political climate and what it portends for Abinader’s ability to steer his agenda through the national legislature, where the PRM lacks an outright majority in the lower house, and so will depend on the president’s popularity to obtain the cooperation of necessary allies. In that vein, the analysis will include a discussion of the looming challenges that are most likely to lead to an erosion of Abinader’s public support, a prospect that has implications for the president’s handling of thorny issues, including fiscal consolidation and privatization.

Along with reports on Belgium, Portugal, and Norway this month, our extensive coverage of Western Europe features a detailed update on the risks facing investors in the Netherlands which is still troubled by the COVID-19 pandemic and, as yet, has no government following the inconclusive elections held in mid-March, which as expected produced a highly fragmented parliament. Although Mark Rutte is expected to be crowned Prime Minister for an unprecedented fourth term, with his center-right Party for Freedom and Democracy (VVD) gaining a seat and its likely coalition partner Democrats 66 (D66) also doing well, our report delves into a rather unique Dutch crisis which led to a failed vote of no confidence, but a censure motion that passed after it was discovered that Rutte had attempted to sideline arch-critic Pieter Omtzigt, a prominent Christian Democratic Appeal member, from the coalition talks for uncovering the historic childcare benefits scandal. Our reports looks into how this will impact on the stalled coalition negotiations, whether it will deliver a minority government and what are the chances of a repeat vote in one of the eurozone’s more stable members. Our report also looks into the economic effects of the pandemic, with ongoing restrictions imposed, and how key risk measures, including fiscal sustainability, are affected by it.

Coverage of Eastern Europe will include full reports on Russia and Czech Republic, where the Communists’ withdrawal of support has delivered what seems a crippling blow to Prime Minister Andrej Babis’ minority government just six months ahead of parliamentary elections. The fall contest is shaping up to be a closely fought affair between Babis’ center-right ANO and an alliance of the libertarian Pirates and the liberal Mayors and Independents that has overtaken the main governing party in the most recent polls.

The report will provide an in-depth assessment of the policy implications of the alternate possible outcomes of the elections, with particular emphasis on the post-pandemic budget strategy. The analysis will also explore the prospects for progress on efforts to root out corruption, a key deterrent to foreign investment that has remained in the spotlights thanks to the prime minister’s personal scandals, which have also adversely affected relations with the EU.

Turning to the Middle East and North Africa, the roster for March includes fully revised reports on Saudi Arabia and Libya, which has made significant strides in recent months toward ending a decade-long civil war that has in recent years resulted in the de facto division of the country into rival states headed by competing administrations based in Tripoli and Tobruk. Building on a cease-fire agreement concluded in October 2020, the antagonists formed a new Tobruk-based government of national unity (GNU) in March.

However, the mutual animosity and distrust between various armed factions still has the potential to derail the process, as do the often-competing interests of the foreign actors that have intervened in the conflict and seem to be reluctant to retreat to the sidelines. In addition to assessing the probability of the reunification process advancing beyond planned national elections in December 2021, the report will discuss the implications of a breakdown of the truce for political stability and the investment climate, as well as how issues such as COVID-19 and oil-price volatility might affect risk under each of the most likely regime scenarios.

Over in Asia we lead with a detailed analysis on the political and economic risks affecting investors in Malaysia, which seems to be overcoming the pandemic now that C-19 cases are receding and the vaccination program is evolving, but where the political backdrop remains complex and potentially damaging to an otherwise favorable risk-return outlook. Our report looks into the ramifications of the eight-month suspension of parliament lasting until August, noting the powers the government retains, and the negative effect on essential reforms. We also focus in on the damaging rift between Prime Minister Muhyiddin Yassin’s Malaysian United Indigenous Party (Bersatu), the largest party in the conservative-nationalist National Alliance (Perikatan Nasional), and the United Malays National Organization driving the National Front (Barisan Nasional), which is still influenced by its former leader and disgraced Prime Minister Najib Razak. We look at what this means for snap elections when the pandemic emergency is over and whether the political jockeying will have any meaningful impact on institutions and policymaking to influence assets. As well as other political risk developments, including the crisis developing within the opposition Democratic Action Party, and allegations of corruption against members who have been persuaded to join PN, we also delve into Malaysia’s economic risks, looking at its fiscal metrics in light of the pandemic emergency, and prospects for economic growth and other key variables, including the ringitt.

As well as a report on Papua New Guinea this month, our coverage of key Asia-Pacific markets includes a fresh update on the state of play in New Zealand to assess whether investors should remain positive about one of the world’s least riskiest domains which has also managed the pandemic so well to date by racking up fewer than 3,000 cases and just 26 deaths to the disease while keeping the economy open as fully as possible. There are few impending risks to political stability, with Prime Minister Jacinda Ardern’s Labor Party commanding parliament and working collegiately with the Greens on a socially responsible and environmentally friendly growth-supporting agenda. Our report nevertheless looks at several tail risks to investors which range from incipient inflation and a roaring housing market, exacerbated by low borrowing rates, to foreign policy and natural disaster risks. On foreign policy, we tease out the implications of New Zealand’s reluctance to criticize China that is putting pressure on countries committed to the “Five Eyes Alliance” for intelligence sharing. Our report also focuses in on other key economic risks, looking at fiscal indicators in light of the government’s budget for 2021, the outlook for tourism and net migration that are so crucial to NZ prosperity, and also the current account and its impact on the kiwi dollar.

Closing with Sub-Saharan Africa, we’ll offer an update on the volatile situation in Ethiopia, as violence continues in the Tigray region. We’ll determine whether the country’s ethnic strife can be accommodated within the existing governmental apparatus, and look more closely at the privatization process, and whether investors can hope for the creation of a stock exchange.  Sierra Leone is also on tap this month, as we’ll have a look at the implications of a recent cabinet shuffle, continued worries over new viral outbreaks, and an economy that is expected to grow north of 5% this year on the back of mining receipts. PRS will point out the risks to the operating climate, and take a special look at the country’s progress in reducing corruption in public and commercial affairs.

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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