Global political risk outlook ‘bleak’ as pandemic fallout drives instability, finds Verisk index

Some 88 of 130 countries are likely to see a spike in political risk by 2023, with the global outlook “bleak” for the next two years, finds Verisk Maplecroft’s annual sector outlook. Driven by the economic fallout from Covid-19, Verisk says the pandemic’s impact on political instability will be “2020’s sting in the tail” and the crisis’s “final act”. Some 23 nations, – including Brazil, Saudi Arabia, the Philippines and several emerging eastern European countries – will carry the highest levels of political risk during the next two years, and record a fall of more than 0.5 points in Verisk’s political stability index. Verisk says these countries have seen trust in government legitimacy fall and civil unrest rise, both stoked by the pandemic. Verisk says risks for companies operating in politically unstable nations range from erosion of countries’ ESG profiles, to trade blocs and disruption for all but the most resilient firms. “In countries where political powerbrokers are struggling to engineer economic recoveries, answer for the human toll of the pandemic, or are falling victim to internal political divisions, the risk will be particularly high,” Verisk states in its Political Risk Outlook. Countries with high levels of debt after the “credit binge” in 2020 are also running higher levels of political risk. Verisk found 84 countries recorded “exceptional” increases in debt-to-GDP ratios of at least ten percentage points last year. “Servicing higher debt burdens will have the highest potential to drive discontent by constraining social spending and fiscal stimuli, and that’s without even factoring in the risk of any abrupt change from central bankers in developed markets,” commented James Lockhart Smith, head of market risk at Verisk Maplecroft. Such moves “would trigger a major withdrawal of capital across emerging and frontier markets”, he added. Argentina, South Africa, Russia, Romania and the Dominican Republic borrowed the most last year, Verisk says, and are now “markedly more exposed to political risks”. Gulf countries, which have traditionally been staples for firms and investors, are running high levels of political risk through to 2023, Verisk adds. High-impact, low-probability tail risks are highest in the Gulf, putting countries such as Saudi Arabia, Kuwait, Qatar and Bahrain within some of highest brackets for political destabilisation in Verisk’s index. Saudi Arabia is running a 4.9% probability of drastic decline in political stability by the beginning of 2023, says Verisk. The country ranks second behind Azerbaijan when probability and magnitude of political risk are combined. Verisk says that while a traditional emerging market debt crisis is unlikely, investors and corporates “face a toxic brew of mounting political risks, albeit one that is survivable for those with diversified cross-national exposures”. Mr Lockhart said: “Watch out for non-contagious instability in the most indebted emerging markets, especially weak democracies, and the further erosion of political institutions in some European countries… We might be done with 2020, but 2020 isn’t done with us.”

Global political risk outlook ‘bleak’ as pandemic fallout drives instability, finds Verisk index

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