Credendo downgrades eight countries as political instability bites

Belgian state export credit insurance agency Credendo has downgraded eight countries: Bangladesh, Bhutan, Burkina Faso, Djibouti, El Salvador, Haiti, Mongolia and Uganda.

The insurer said that, since its outbreak, the war in Ukraine has “sharply harmed” Bangladesh’s liquidity, particularly through high commodity prices.

The country is a net fuel importer and so it is hit hard by costlier energy imports. Additionally, workers’ remittances – a major source of current account receipts – have been weakening. Credendo noted that, as a result, foreign exchange reserves have been rapidly depleting during the year (-23% between end 2021 and October 2022) towards close to pre-Covid levels.

“Even though a limited amount of foreign currency is required for low external debt service, soaring imports have contributed to substantially widen the current account deficit (multiplied by four) and have lowered the foreign exchange reserves’ import cover to four months (from seven months in 2021), a nine-year low,” said the credit insurer.

Credendo says that this has justified a downgrade of the short-term political risk from 3/7 to 4/7, which is still a moderate risk rating.

“The outlook for 2023 is negative, with liquidity pressures projected to remain high as the expected sharp global economic slowdown will hit the western (EU) demand for garments, the country’s dominant industry, whereas fuel prices are expected to persist at high levels too,” commented the insurer.

Haiti has been downgraded from category 5/7 to 6/7. Credendo said that Haiti is on a “slippery slope” towards becoming a failed state.

The country has been engulfed by insecurity ever since the assassination of President Jovenel Moïse in July 2021. Since then, several violent criminal groups have disrupted the economy and dominate a large part of the capital, notes the insurer.

“The lack of a democratically elected president and of a functioning parliament (Haiti’s parliament has been inoperative since 2020) has deepened the country’s institutional vacuum. Criminal gangs become increasingly powerful and their capabilities already surpass those of the police. It is likely some criminal gangs will become more powerful than the government and will take over control of the capital and other regions and institutions in the country in the coming months,” warned the insurer.

Uganda has been downgraded from category 3/7 to 4/7.

Credendo said that Uganda’s financial situation has deteriorated. Short-term external debt had already been increasing significantly for several years and has now shown a further jump.

“The current account balance has become more negative since the start of the conflict in Ukraine. This is mainly caused by the deterioration of the terms of trade, caused by higher oil, food and fertiliser prices. In a context of rising government debt and a global increase of financing costs due to rising interest rates, this will further stress the country’s financial position,” said the insurer.