PRS’ coverage of the Americas will feature a revised report on the United States, which will hold presidential and legislative elections in early November. The Democratic Party is attempting to retain control of the presidency for a third consecutive term, which has historically proven to be a challenge for incumbents, and is counting on a favorable electoral schedule to help it win back control of the Senate. Despite the many shortcomings of the Republican presidential candidate, Donald Trump, who has relied on the adoption of extreme positions and inflammatory rhetoric to disguise the lack of substance in his proposals and an alarming degree of ignorance on most policy issues, the Democratic nominee, Hillary Clinton, has rather significant weaknesses of her own, mostly having to do with perceived character flaws, that have kept the race much closer than it should be on paper. Although Clinton is favored to win, she will confront an opposition majority in the lower house of Congress, and, quite possibly, in the Senate, as well. Moreover, it is impossible to rule out a Republican sweep, which, with Trump heading the GOP ticket, would produce a great deal of angst in international markets and foreign capitals.
Clinton has promoted a somewhat populist policy agenda during the campaign, and the report will assess her prospects for delivering on key promises in the highly probable event that she faces an opposition majority in at least one of the congressional chambers. A key focus of the report will be the fact that the next president will very likely fill two, and possibly three, vacancies on the Supreme Court, creating the potential for a decisive shift in the ideological balance of power within the body that will have significant implications for state regulatory power and other issues relevant to the climate for investment. In that vein, PRS will also examine the risk of a constitutional crisis arising from the Senate’s refusal to even consider Supreme Court justices nominated by a Democratic president.
Turning to the Middle East and North Africa, PRS will discuss the state of play in Iran six months after President Hassan Rouhani’s moderate allies scored an impressive victory in parliamentary elections and less than one year before Rouhani faces a test of his mandate in a presidential election that will be held in mid-2017. Our update will examine how the lifting of sanctions under a landmark nuclear agreement has affected economic performance, and the steps being taken by the government to fully realize the full potential of its international rehabilitation, which include an overhaul of the terms of oil contracts. More generally, the update will assess the policy steps Rouhani is likely to take as he seeks to overcome the political obstacles, including maneuvering by the country’s powerful non-elected bodies, that could influence impede his path to re-election.
Our European coverage includes a look at recent developments in Greece to discover how the political climate is faring as the governing coalition of Syriza and Independent Greeks overseen by Prime Minister Alexis Tsipras tries to manage public expectations for an improvement in economic conditions, manage more effectively the refugee crisis, and push through sufficient austerity measures to meet its creditor obligations. Our report looks at attempts to usher in political reforms, what they will mean for future government stability, and whether they are merely a means to deflect attention from the critical issues of a banking system on its knees, and a nation still struggling for a long-term solution to its overwhelming liabilities. In that light, we look at how the government’s privatization program is faring, and we take a forensic approach to recent economic data releases to assess whether Greek fortunes are, or soon will be, finally improving, with the aim of determining the country’s chances of remain within the euro zone.
In Eastern Europe, PRS will issue a post-election assessment of political risk in Russia, where the ruling party is all but certain to retain its majority status in the State Duma, assuring President Vladimir Putin of a rubber-stamp Parliament as he lays the ground for a re-election bid in March 2018. The analysis will focus especially on the risks associated with Putin’s aggressive foreign policy strategy, and will examine the government’s plans for reviving a stagnant economy, including the implications of a recently announced plan to cooperate with Saudi Arabia to stabilize the global oil market.
Over in Sub-Saharan Africa, our updated report on Nigeria this month looks at how the country is coping with the fallout from the oil crisis, as depressed prices for Nigerian crude exports cause untold damage to the economy and the nation’s ability to service its debt. We look at what recent changes in the foreign currency regime will do in terms of managing the situation, whether the recession Nigeria has now entered will be a prolonged one, and how other macro-variables, such as inflation, the fiscal metrics, and external balances are all likely to fare moving into 2017. Our extensive, forward-looking commentary moreover analyzes how this will all play out in the political domain, assessing the risk that President Muhammadu Buhari may resort to the use of force to silence domestic dissent as his government deals with the threat posed by Boko Haram in the north and by ethnic strife in other parts of the country that has historically resulted in damage to oil infrastructure that holds production far below potential.
In Asia this month we look at how the Democratic Progressive Party (DPP) government is shaping up in Taiwan after it managed to wrest control of both the presidency and legislature from the Nationalist Party (KMT) in elections held last January to deliver the majority it requires to facilitate legislation. Our report looks in detail at how this independent-minded party is tackling Taiwan’s weakening economy, which is still a source of acute concern for 2017. We look at what is being done to root out corruption in the former administration and how that will play out politically. Plus, importantly, we analyse how the government plans to handle relations with the mainland after Beijing severed diplomatic and economic ties following the election of the DPP’s Tsai-Ing-wen as President, whose pragmatic approach did not go as far as to endorse Beijing’s “One China” stance. Our report looks at the implications of all this for cross-strait relations and how it will impact on the economy considering the island’s dependency on Chinese tourism, capital flows and trade given that China receives broadly 40% of Taiwan’s exports, with the inclusion of Hong Kong.
PRS’ coverage of the Americas is highlighted by a fully revised report on Brazil, where Dilma Rousseff faces a trial in the Senate in late August that will very likely bring an early end to her claim to the presidency. The Cabinet formed by Interim President Michel Temer has been attempting to right the crippled economy, and he has managed to score some legislative successes that probably could not have been achieved by the politically damaged Rousseff. However, assuming Rousseff’s ouster, Temer’s attention will be divided between trying to pull the economy out of its tailspin and working to firm his grip on power and broaden his base of support ahead of the 2018 presidential election. The report will assess the government’s prospects for successfully navigating the very rough economic seas—examining the steps that will be required to reverse the downturn and weighing the extent to which political factors might impede action—and analyzing what success or failure might mean for the investment climate and for the outcome of the next round of elections.
Our coverage of Western Europe leads with Italy, and will focus on the latest crisis to befall the coalition government led by Prime Minister Matteo Renzi, which must unravel the chaos caused by the huge unrestructured loan impairments that are weighing on the banking sector and that have been worsening since the global financial crash eight years ago. We look at the various options open to the government, and what is in store for an economy that is still struggling to make headway, and is now at risk from the after-effects of the UK’s decision to withdraw from the EU, which is threatening long-lasting effects for the political and economic scene on the continent. Our report includes forecasts of key fiscal-macro indicators, and looks at how these will affect political and social stability given that unemployment is rising, Renzi’s popularity is sliding, and a referendum on his landmark political reform bill is looming in October.
Spain also features in detail this month, as we ascertain what is next for the indebted sovereign borrower in the wake of the repeat general election held in late June, which produced no more conclusive a result than one held last December. Our report weighs up the likely options for interim Prime Minister Mariano Rajoy, who is charged with trying to cobble together a coalition against the growing threat of possibly having to stage a third election within a year, and what types of policies will be pursued when the administration is eventually formed. Our report analyzes the implications of the political gridlock for Spain’s fiscal stability program, as well as how it may impact on an economy that has been one of Europe’s success stories for broadly two years, aided in no small part by a booming tourism industry that has hitherto upheld investor sentiment.
Turning to South Asia, PRS will closely examine recent political developments in India, where Prime Minister Narendra Modi recently secured approval of a landmark tax reform measure in the opposition-controlled upper house of Parliament. The achievement will no doubt cheer investors who expected an aggressive reform push after Modi’s NDA coalition won a landslide victory in 2014, and have been disappointed by the lack of results thus far, which is almost wholly attributable to obstruction by members of the upper legislative chamber. PRS will assess what the victory means for the remainder of the government’s ambitious and politically controversial reform agenda, which has significant implications for the climate for foreign investment and trade, and how key state elections falling due over the next 18 months might affect Modi’s ability to ensure that his reforms produce a broad improvement in living standards, which will ultimately determine whether the NDA is granted a fresh mandate to continue pursuing its reform agenda in 2018.
Our extensive coverage of sub-Saharan Africa this month casts a critical eye on Ghana, which is still struggling to uphold investor confidence in the wake of the commodity price crash, forcing the government to pull the plug on a $500 million Eurobond issue following a spike in borrowing costs that is now raising difficult questions concerning state financing. Our report sets out an assessment of medium-term fiscal sustainability, and how relations with the IMF are likely to pan out in view of recent central bank reforms that contravene the Fund’s directives. We look at what the economic downturn and rampant inflation portend for social stability and for the commercial sector in advance of a general election that will take place on December 7, including the risk of election-related unrest and the uncertainty stemming from the possibility of the government changing hands.
Our coverage of the Americas features a new report on Peru, where the rightist FP won a majority of legislative seats at elections held in April, but the party’s presidential candidate, Keiko Fujimori, was narrowly defeated by Pedro Pablo Kuczynski, a former prime minister who advocates a liberal policy agenda, at a run-off election held in early June. Kuczynski has pledged to counter the negative economic impact of a slump in prices for mineral exports with a pro-growth strategy that includes a reduction in the sales tax and incentives for businesses to reinvest profits. Unfortunately, the new president’s PPK won just 18 seats in the 130-member Congress, and Fujimori has already ruled out any formal agreement with the incoming administration. The report will examine where there might be room for cooperation between the government and the FP, as well as those policy areas where the FP’s legislative majority is likely to pose an insurmountable obstacle. The report will also discuss what divided government portends for investment-related risk, including the prospects for overcoming strong local resistance to mining that has forced the suspension of major projects, and for medium-term economic performance.
PRS will also publish an update on Venezuela, where both economic and political conditions continue to worsen, as the opposition majority in the Congress pushes to legally remove President Nicolás Maduro from office against a backdrop of rising crime, triple-digit inflation, and severe shortages of even basic necessities. The analysis will examine the potential for the twin economic and political crises to trigger the suspension of democratic rule, and will focus especially on the danger of a sovereign default, and what the Maduro government’s efforts to avoid such an outcome could mean for foreign investors.
Turning to the Middle East and North Africa, PRS is preparing a revised report on Israel, where Prime Minister Binyamin Netanyahu has managed to bolster his shaky Likud-led government by persuading the ultranationalist Yisrael Beiteinu to join the coalition. The renewed partnership between the one-time electoral partners has reinforced the rightward lean of the government, which bodes ill for any chance of substantive progress toward a peace deal with the Palestinians. However, it has not prevented a rapprochement with Turkey, a development that has positive—but hardly game-changing—implications for international efforts to restore some semblance of order in Syria and to prevent more generalized instability in the region. In addition to offering a reassessment of the current government’s chances of surviving for a full term (and beyond), the report will also examine what, if any, impact the coalition reshuffle might have on the economic policy strategy over the five-year forecast period.
Coverage of Western Europe includes a consideration of impact that will be felt by Switzerland in the aftermath of the British vote to withdraw from the EU. PRS will examine the repercussion of Brexit for the Swiss banking industry, the likely impact on the economy, including the Swiss franc, and what it will mean for Swiss-EU relations. On the last point, the report will examine how the evident threats to the unity of the EU might influence the course of negotiations over immigration restrictions approved by Swiss voters in a binding referendum held in 2014. In terms of domestic political matters, our report will look at the challenges for the broad coalition government, in which the right-wing Swiss People’s Party has secured a more influential role, but will continue to encounter obstacles to implementing its agenda.
China heads-up our in-depth political risk reporting this month, six months on from a second major spate of financial volatility that sent out a chilling reminder of the questions lingering over Beijing’s financial sector liberalization path and its ability to stage-manage a soft landing for the economy. We look at what has happened since, focusing on the prevailing economic trends, and the short-to-medium term challenges facing the authorities, including the risks still swirling in the real estate market, the effectiveness of government policy to address the debt problems still posing a background concern and how China will react to the market turbulence caused by Europe’s troubles. Our report moreover looks at the increasingly tense relationship playing out between China and its regional neighbors over claims to sovereignty in the South China Sea, and how this issue will develop with the US also acutely involved.
Our Asia coverage will also include a detailed look at the implications of the recent elections in the Philippines which produced an overwhelming victory for the controversial Davao City mayor, Rodrigo Duterte, whose presidency will undoubtedly prove to be one of marked contrast to that of his predecessor, Benigno Aquino. On the one hand, Duterte is already raising huge concern among human rights groups, not only for his support for the death penalty, but also for his promotion of street justice for drug dealers, a stance that made Davao City notorious for its extra-judicial killings during his tenure as mayor. On the other hand, Duterte has also made a start on establishing peace in the troubled region of Mindanao, and is also offering considerable encouragement to the business community by signaling that his economic policy agenda will include enactment of constitutional changes that remove limits on foreign investment and land ownership. The report examines how the new government’s sometimes contradictory approach to addressing the many challenges will affect the country’s reputation among foreign investors, and rounds out with forecasts for the major macro-variables through 2017.
Our coverage of the Middle East and North Africa includes a revised report on Libya, where the formation of a UN-backed government of national accord (GNA) has done little to facilitate the restoration of order in the deeply divided country. The GNA, an alliance of various political and armed factions previously aligned with the rival administrations based in Tripoli and Tobruk, enjoys the strong support of the international community and has been endorsed by key government institutions in Tripoli, including the central bank and the National Oil Corporation. However, it has yet to win formal recognition from either of the competing regimes. The GNA’s endorsement by Misrata-based militias and army units that had previously supported the Islamist-dominated administration in Tripoli poses an obstacle to gaining broader backing for the unity government in the east. At the same time, troops loyal to Gen. Khalifa Haftar remain aligned with the Tobruk-based government, and have signaled that they will not shift their support to the GNA without assurances that the general will hold a position of influence within a unified national administration, a condition that is likely to be unacceptable to the Islamists.
The report will include a detailed examination of the main obstacles to closing the overlapping east/west and secular/Islamist divides, an assessment of the prospects for overcoming the impediments, and an analysis of what success or failure in that regard will mean for the deeply troubled economy and an abysmal business climate. PRS will also discuss the implications of the domestic political dysfunction for the security climate, both in Libya and in the broader region, paying particular attention to the threat posed by ISIL and other armed extremist groups.
Our coverage of Western Europe this month leads with an in-depth report on the United Kingdom, where a national referendum to decide on whether to remain a member June 23. The plebiscite is naturally dominating the UK’s political risk profile and is splitting sympathies within parties, not least the governing Conservatives, where Prime Minister David Cameron and his finance minister, Chancellor George Osborne, who are both in favor of remaining in the EU, are becoming involved in some heated exchanges with fellow party members wishing to leave, including former London Mayor Boris Johnson, who is tipped to replace Cameron if Brexit succeeds.
Our report looks at both sides of the campaign, and what it will mean for political and social stability after the result is known, including the vexed question of Scottish independence, which may be revisited should a majority of British voters decide to leave the EU. We round out with a careful inspection of the UK economy, presenting alternative scenarios based on the two sides of the argument, and the implications for asset classes.
We also cover France in detail this month, as the euro zone’s second-largest member moves nearer to presidential and parliamentary elections that are scheduled to take place in April and May 2017, with fresh strikes and public protests erupting over the government’s labor reforms. We assess the key actors in the campaign, who is likely to win at this stage, and what it will mean for a country which has failed to impress for so long on the economic stage, and is struggling to convince investors it has terrorism risks under control with a state of national emergency continuing since the Paris atrocities in November 2015. Our report looks closely at what President François Hollande’s Socialist Party government will do in its final year in office, and how public opinion might influence policy-making. We also identify what the fuel shortages and industrial action will do for the economy, which has been showing some encouraging signs of recovery, but is vulnerable to risks stemming from the high-temperature political climate.
This month’s coverage of Eastern Europe includes a fully updated report on Poland, where the conservative populist PiS government elected last fall is living up to the worst expectations of its critics, with negative implications for the business climate. Prime Minister Beata Szydlo’s administration has used its parliamentary majority to implement numerous controversial measures, the most far-reaching one involving a curtailment of the Constitutional Court’s ability to act as a check on an overzealous legislature, The government’s actions have fueled large protests in the capital, and attracted unwanted attention from the European Commission, which has warned that it could be forced to make unprecedented use of EU powers to penalize Poland for its defiant refusal to abide by European norms.
The report will examine the PiS government’s policy agenda, and discuss what the implementation of the various measures will mean for foreign businesses operating in the country. PRS will also assess the risk of significant deviations from economic orthodoxy, and the likely effect of populist policies on economic performance in the near term and over a five-year forecast period.
Turning to sub-Saharan Africa, PRS will examine recent risk-related developments in Cameroon, which has stepped up joint operations against Boko Haram militants in northern Nigeria, as part of a western-backed task force of regional governments. The militants have responded by avoiding direct confrontation with the military in favor of suicide attacks against soft targets in Cameroon’s far north, where the security situation is likely to continue to deteriorate. The fight against Boko Haram remains a drain on Cameroon’s resources, though the group’s reach remains limited to remote areas of the northern regions. The principal threat to political stability is the uncertainty over succession to President Paul Biya. There is mounting speculation that the long-serving leader will stand for another term in 2018, raising the prospect of opposition protests and violence over the next 18 months.
Questions over executive stability could dent Cameroon’s reputation as a favored destination for foreign investors. Low oil prices pose the second downside risk Cameroon’s robust economic growth, as twin deficits force the government to ramp up non-concessional borrowing. A 25% increase in oil production last year, along with high capital spending, helped sustain growth at 5.9%, but the rate is expected to decelerate toward the 5 percent-mark in 2016 as oil output stabilizes.
Our extensive coverage of countries in Asia this month includes a detailed analysis of the risks to investors in Malaysia, where the government’s popularity, and that of Prime Minister Najib Razak, in particular, will be tested in two by-elections to be held in June. Asset prices, including the currency, are still being affected by the fallout from the default of 1MDB, the state development fund, which remains under investigation for financial irregularities, notably concerning the alleged involvement of Najib heading up its advisory board. With the ringgit one of Asia’s worst performing currencies this year, and credit default swap markets factoring in the increased risk of sovereign debt default, we look at what investors can anticipate in the coming months, and whether Malaysia’s prospects can improve at all, bearing in mind potential setbacks to the economy and the social tensions arising from the government’s decision to enforce a stricter penal code based on Islamic Shari’a law, which is dividing the country’s ethnoreligious communities. Our report rounds out with forecasts for real GDP growth, inflation, and the current account balance, incorporating developments in the key commodity export industries.
This month’s coverage of the Americas includes an update on Argentina, where President Mauricio Macri’s center-right administration is pressing ahead with unpopular reforms aimed at dismantling the market controls imposed by the leftist FPV governments that dominated the political scene for more than a decade. Thus far, Macri’s efforts have produced more pain than progress. A resolution of a dispute that has prevented government payments to holders of bonds that were restructured in the aftermath of the country’s massive sovereign default in 2002 appears to be in view, but the president is facing resistance from opponents in the divided Congress, who are moving toward approval of a bill that would prohibit mass layoffs by both public- and private-sector firms. The update will take a closer look at key elements of Macri’s reform program, and discuss the prospects for their successful implementation, as well as the implications for the country’s medium-term economic outlook.
In the Middle East and North Africa, our coverage includes a revised report on Saudi Arabia, where the royal government has unveiled an economic reform program that is aimed at ending the kingdom’s dependence on oil, prompted by the fiscal pressures created by low oil prices, generous social spending, and an expanded military role in the region. Plans include the partial privatization of the health, education, and oil sectors, an accelerated “Saudization” of the work force, the creation of a $2 trillion sovereign wealth fund, a more intense focus on developing mining potential, and investment in the domestic defense industry.
Targets for economic growth, expansion of the private sector, job creation, and income from the sale of state-owned assets are ambitious to the point of being unrealistic, particularly given the changes in social attitudes that will be required if, for example, Saudi Arabia is to develop a flourishing tourism industry. The report will assess the overall prospects for the success of the effort, discuss potential obstacles to progress in key areas, and identify the opportunities that the reform push holds for foreign investors. In addition, PRS will examine the political implications of Vision 2030, both in terms of the broad impact and the career prospects of Deputy Crown Prince Mohammed bin Salman, the main author of Vision 2030.
Looking at Sub-Saharan Africa, the Botswana government of President Ian Khama remains broadly stable despite a slump in global diamond prices which has put a strain on the economy. With no electoral tests until 2019, the ruling Botswana Democratic Party (BDP) faces no immediate challenges to its rule. The principal mid-term risk to political stability is posed by a looming succession battle in the BDP, but factional jockeying for power is unlikely to gain steam until the final stages of Khama’s mandate, which ends in March 2018.
The authorities expect mining revenues to fall by 8% in 2016 due to the continued fall in global commodity demand, as the struggling sector faces further job losses and production cuts, and. Still, Botswana is set to return to positive growth after an estimated 0.3% contraction in 2015, propped up by a stimulus package and an increase in capital expenditure in the 2016 budget. Fiscal balance will remain firmly in the deficit for a second year running, but with reserves estimated at 11.7 months of imports of goods and services, Botswana has sufficient buffers to withstand the fall in revenue.
In Asia, the focus will be on Myanmar, which has been attracting substantial investor interest since it began embarking on administrative and economic reforms under the military-backed government five years ago. The question remaining is whether this trend will continue without undue interference from the military, and, crucially, whether these positive economic trends will translate into true political reform in the wake of the landslide victory for Aung San Suu Kyi’s National League for Democracy, which has emerged as the dominant force in the legislature, and has secured the presidency for its candidate. Our in-depth report seeks to answer these questions by looking at the formal role now played by the pro-democracy campaigner, who is still constitutionally barred from holding the presidency, and to what extent the junta will allow her to participate fully in policy-making, bearing in mind the difficulties of ethnic conciliation in a country riven by serious internal unrest. Our report also looks at the practical challenges affecting businesses operating in Myanmar, where corruption and bureaucratic obstacles persist, not least in limiting inflows of machinery and trucks across the borders with China and Thailand, and assesses whether (and how) the new government’s plans will make a difference.
Our coverage of Western Europe this month casts the spotlight on the recent general election in Ireland to look at the implications for the fiscal stability program in what is still one of the euro zone’s most highly indebted sovereign borrowers. As expected, support for the Fine Gael-Labour coalition slumped, leaving Prime Minister Enda Kenny still in control for a second successive term, but as head of a government that will rely on the support of Fine Gael’s traditional rival, Fianna Fáil, and independent lawmakers. Our report looks at the deficit and debt projections, as well as broader economic indicators, to assess current prospects in light of the political agreement between the two main parties. The forced retreat on controversial plans to introduce charges for household water supplies raises questions about the government’s ability to finance the investments required to improve the dilapidated infrastructure, and, just as importantly, Ireland’s relations with its EU partners.
Turning to Eastern Europe, PRS will focus on Hungary, where Prime Minister Viktor Orbán’s populist government is now in the second half of its term, and the main governing Fidesz party holds a solid lead over its rivals in polls of voter preferences. The hard line adopted by the government in response to a refugee crisis has enabled Fidesz to steal a march on its far-right competitor, Jobbik, which would likely benefit from any loss of support for Orbán’s party. However, the government’s policies have contributed to tensions with the EU that could jeopardize Hungary’s access to development funds. With economic growth forecast to slow once again in 2016, there is a clear near-term risk that Orbán will resort to crowd-pleasing populist gestures that have negative implications for foreign firms.
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.
Our coverage of the Americas this month includes an update on Jamaica, where the Jamaica Labour Party won an upset victory over the incumbent People’s National Party at an early election held in late February. Among the factors contributing to the PNP’s defeat was a sense among voters that the economic gains made in recent years have not been sufficient to compensate for sacrifices that were required to meet the conditions for receipt of multilateral loans that saved the country from default. The new JLP government headed by Andrew Holness has pledged to employ fiscal tools to stimulate faster economic growth, while still fulfilling the terms of the country’s lending agreement with the IMF. Skepticism is high, not least because the JLP claims a bare one-seat majority in the Parliament. PRS will examine the JLP’s agenda in more depth, assess the government’s prospects for pulling off its difficult balancing act, and discuss the implications—including the possibility of a quick return to the polls—in the event that it fails to do so.
Turning to the Middle East and North Africa, PRS will issue a fully revised report on Iran, where recent elections for the Parliament and the powerful Assembly of Experts resulted in significant gains for allies of the country’s reformist president, Hassan Rouhani. The result is a boon for Rouhani, and indicates broad support for the nuclear deal his government concluded with a coalition of world powers in late 2015. However, it is easy to overstate the practical implications of the election outcome in terms of the scope for substantive reform. The report will discuss some of the key items on Rouhani’s reform agenda and assess the prospects for successful implementation of his preferred policies. PRS will also examine the investment opportunities made possible by the lifting of sanctions and discuss the obstacles that the government will need to address if Iran hopes to fully realize the potential created by its international rehabilitation.
Coverage of sub-Saharan Africa includes a detailed update on the political crisis now unfolding in the Democratic Republic of Congo ahead of the elections that are due to be held in November 2016. PRS will assess the risk that President Joseph Kabila, who is constitutionally bound to step down at the end of his current term, will attempt to extend his tenure in power. In addition to examining how Kabila might pursue that goal in practice, PRS will assess the risks arising from such a move in a country with recent history of internal armed conflict. The report will also discuss the implications of Congo’s dependence on the production and export of commodities like copper and cobalt for the near-term economic outlook, in general, and debt sustainability, in particular, and the broader policy implications of the government’s decision to drops a plan to revise the mining code.
In West Europe, PRS will examine the political risk in Spain, where Prime Minister Mariano Rajoy’s scandal-hit Popular Party government lost its majority in the Parliament at elections held in December. In the weeks since, neither Rajoy nor Socialist Party leader Pedro Sanchez has been able to form a viable government, and it looks as though voters may be returning to the polls in late June. The report will examine what the political uncertainty means for the economy, paper assets, and fiscal projections, given that there is still considerably more to do in terms of structural reforms to tackle the deficit and the legacy of debt caused by the financial crisis in 2008.
Further to the east, we will take a look at recent developments in Ukraine, where the government’s access to essential international financing has been jeopardized by its failure to repay a $3 billion loan that was obtained from Russia shortly before the downfall of former President Viktor Yanukovych’s government in early 2014. The debt crisis comes amid building turmoil within the reformist government, highlighted by the recent resignations of Economy Minister Aivaras Abromavicius and Deputy Prosecutor-General Vitaliy Kasko, both of whom departed in frustration over the lack of aggressiveness in the administration’s approach to reform.
Prime Minister Arseniy Yatseniuk’s government has been reduced to minority status following the withdrawal of three parties from the coalition, and it appears that handing over power to a Cabinet of technocrats may be the only way to avert a snap election. PRS’ update will examine how an early election might affect the composition of the government, and what policy changes might be expected as a result, as part of a broader assessment of the prospects for implementing a reform agenda.
Our coverage of Asia this month casts the spotlight on Japan, as we assess the growing political risks developing for the scandal-ridden administration led by Prime Minister Shinzo Abe, which must decide whether to further delay the consumption tax rise planned for 2017, and perhaps introduce new fiscal stimulus measures to bolster the economy. Support for the government is falling rapidly as doubts creep in over the efficacy of the government’s reflationary economic program, dubbed “Abenomics,” and the Bank of Japan’s recent decision to supplement its massive quantitative easing program by finally embracing negative interest rates. Our report moreover tries to ascertain whether Abe might call a snap election either before, or concurrent with, elections for seats in the upper house of the Diet that are scheduled for July, and what investors might expect from that.
Our extensive coverage of the Americas this month includes an update on the United States that will examine whether the disappointing economic growth data for the fourth quarter of 2015 is cause for deep concern, assess the risk of further battling between President Barack Obama and the opposition-controlled Congress that could derail a weak but sustained recovery, and provide an early assessment of how the November presidential and congressional elections might turn out. PRS will also issue an update on Guatemala, where a political crisis driven by revelations of a massive network of corruption in the government played a key role in the election of a political novice to the presidency. Comic actor Jimmy Morales took office in early 2016 with little chance of building a stable, sustainable majority coalition in the Congress, a handicap that will compound the risks stemming from his evident lack of anything resembling a concrete plan for governance.
Rounding out the regional coverage, PRS will also produce a fully updated report on Venezuela, where the election of a center-right majority at congressional elections held in early December creates a basis for dismantling the institutional underpinnings of the leftist “revolution” initiated by Hugo Chávez in the late 1990s. Unfortunately, Chávez’s protégé, President Nicolás Maduro, has signaled that he has no intention of ceding any political ground to his opponents, a stance that creates a high risk of a constitutional crisis that could provoke military intervention, most likely on behalf of Maduro. The growing risk of political instability bodes ill for near-term relief from dismal economic conditions, which will only get worse in the increasingly likely event of sovereign default. The report will discuss the requirements for rescuing Venezuela from its current deep predicament, and under what circumstances those requirements might actually be met.
Looking at the Middle East and North Africa, PRS will issue a revised reports on Egypt, where recent legislative elections produced a National Assembly dominated by parties and independents who are broadly supportive of the political and policy program offered by the country’s new strongman president, Adel Fattah el-Sisi. The report will assess what Sisi’s strengthened position means in terms of the implementation of a liberal economic reform program and the broader climate for investment and trade in Egypt. Particular attention will be paid to security-related risks, which, if not adequately contained, could undermine confidence in Sisi’s ability keep the country safe, a development that would have negative implications for both political stability and the attractiveness of the country’s investment opportunities.
This month’s examination of Sub-Saharan Africa includes a report on Gabon, which is scheduled to hold a presidential election in August with an economy straining under the weight of diminishing oil export revenue. Although the incumbent Omar Bongo Ondimba is expected to win a second seven-year term, he faces a potentially strong challenge from Jean Ping, a former top figure in the governing PDG and an experienced campaigner who is running as the joint candidate of a coalition of opposition parties campaigning on a platform of political reform. Recent strikes by public sector workers demanding payment of back wages and bonuses are an unmistakable indicator of mounting fiscal problems that are likely to encourage the government to grant high priority to financing infrastructure projects while leading to delays in payment for imports. The report concludes with an assessment of whether the credit rating agencies are keeping a close enough watch on the negative trends in the country.
Our extensive coverage of Western Europe this month includes a detailed report on Italy, where bond yields are pinned by the ECB’s quantitative-easing program and the coalition government is talking up the prospect of lucrative business deals with Iran. However, PRS will examine the risk implications of the rescue of four small banks last year, and the government’s plans for resolving the legacy of bad debts that is now stirring some concern in the financial markets. Our report moreover looks at the wider issues bedeviling Prime Minister Matteo Renzi’s stuttering reforms agenda, as well as a summary analysis of the state of the economy and the prospects for finally achieving an economic recovery that has so far proved elusive, owing to a poor regulatory environment that deters investment, low productivity, and lingering fears of a debt crisis.
Banking sector issues also dominate our report on Austria this month, as we assess the very latest developments concerning the resolution of creditor claims on HETA, the agency in charge of the bad debts from the failed Hypo Group Alpe Adria. Our report looks at the federal- and state-level political implications of this banking saga as well as how Europe’s refugee crisis and Austria’s sub-par economic prospects are shaping public opinion domestically and inflicting damage on Austria’s investor reputation. Our report looks at how vulnerable economic growth is, its likely effects on unemployment, and to what extent this is affecting the governing coalition’s cohesiveness and policymaking in the light of gains for the far-right in sub-national elections last year and a presidential election on the horizon. Our report rounds out by looking at whether the government has the strength of will to make the deeper cuts in public spending needed to reverse the steady rise in the debt burden, which is approaching 90% of GDP.
This month’s coverage of the Americas features an update on Ecuador, where the leftist government of President Rafael Correa continues to struggle with the negative economic repercussions of sharply lower prices for oil, the country’s main exports and primary source of state income. Correa’s allies in the legislature recently approved a raft of changes to the constitution that among other things formalized the military’s role as a domestic police force and eliminated term restrictions on the presidency. As a package, the amendments point to a worrisome consolidation of power in the executive branch, but with the lifting of term limits only taking effect in 2021, Correa presumably will not be eligible to stand for re-election in 2017. The update will discuss the likelihood that the president will actually surrender control of his office (even if only for four years), and take a look at some of the figures most likely to succeed him if he does. Given the gloomy outlook for the economy, the recent slump in Correa’s approval rating, and the recent defeats of long-dominant leftist parties in Venezuela and Argentina, that group will include members of the opposition. As such, the analysis will include an examination of the policy changes that could be expected if opposition parties gain the upper hand, taking into consideration the political obstacles that a center-right administration would face as it attempts to implement a more market-based policy agenda.
In the Middle East and North Africa, the spotlight will be on Egypt, where the overwhelming victory of parties allied with the government of President Abdel Fattah El-Sisi at two-stage legislative elections held in late 2015 put the final nail in the coffin of the democratic revolution that toppled the autocratic regime of President Hosni Mubarak five years ago. The report will assess what the effective restoration of the old order portends for an economic reform program that had begun to gain some momentum prior to the Arab Spring uprising, but has been stalled in recent years by chronic episodes of political instability. The analysis will include an examination of the prospects for containing the security threat posed by a Sinai-based Islamist insurgency, the intensity of which can be expected to influence the government’s willingness to implement unpopular structural reforms that hold the potential to trigger more generalized unrest.
Our coverage of Asia features a new report on China that examines whether the stock market turmoil at the start of the year is a precursor of more volatility to come, and if so how it will affect domestic policy-making as the central bank balances its priorities for financial stability and managed currency depreciation. Our report looks at what China’s economy, the world’s growth engine, will deliver in 2016, assessing the impact on commodity markets and policy-making in Beijing as Communist Party leaders seek to bolster the country’s influence both regionally and on the global stage. In the latter regard, the report will discuss the implications of rising tensions over China’s territorial claims in the South China Sea, particularly as they affect relations with the US and the prospects for resolving the Korea problem. We will examine the outlook for investment-friendly reforms as China adapts to developments related to the launch of the Trans-Pacific Partnership, and how potential changes could impact on the nation’s macro-fiscal metrics and socio-political stability.
Turning to Western Europe, PRS will examine how Norway is adjusting to the economic fallout from the negative oil-price shock, which has prompted investment cuts by petroleum companies that are having a ripple effect along the supplier chain, contributing to a slump in house prices and rising unemployment rising. The report will assess what the economic headwinds mean for the stability of the minority government made up of the Conservative and Progress parties, which suffered a defeat at the hands of a resurgent Labor Party at recent local elections. The unity of the coalition is threatened by the divergent trends in support for the coalition parties, as the far-right Progress Party has made gains against the backdrop of the European refugee crisis. In terms of the economic outlook, the report will assess the implications of reduced oil income for fiscal and monetary policy, and what adjustments in those areas could mean for the stability of the currency and the risks related to household debt.
Our coverage of Eastern Europe includes an update on Romania, where Prime Minister Victor Ponta’s troubled tenure finally came to an end in November. Ponta’s removal strengthens the hand of the center-right president, Klaus Iohannis, but with the main governing PSD enjoying a rebound in popular support following the election of Dacian Ciolos as Ponta’s replacement, the main opposition PNL cannot assume that it will win a parliamentary election that falls due in November 2016. In the meantime, Ciolos has sent reassuring signals that his government of technocrats will maintain the orthodox policy course that has been rewarded by an upgrade in Romania’s credit rating and has positioned the economy to record one of the highest growth rates among EU members in 2016.
Several of the key metrics we monitor in our risk models for both the International Country Risk Guide (ICRG) and Political Risk Services (PRS) Country Reports are a government’s budget balances
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