Global Insight's Sovereign Risk Service provides the most complete coverage available from any source, covering 203 countries. Our expert team analyzes each nation's credit-worthiness by assessing the country's financial position, economic outlook and the political environment.
Asia leads global upgrades through strengthened exports and finances, a trend exemplified by China's foreign exchange reserves surpassing $1 trillion. Other key upgrades have been triggered by Vietnam joining the WTO, India's continued two-way globalization and Indonesia's further debt reduction. Macau's prominence as China's only gambling 'Las Vegas' and progress in East Timor's oil project also contributed to Asia's rating improvement.
However, the survey also noted a number of countries at financial risk. In retaliation for the expulsion of alleged spies, Russia clamped down hard on Georgia through a trade squeeze, which could endanger the financial and political survival of this young Western-oriented democracy. Until it is clear that these new risks can be mitigated, Global Insight has placed the country on 'Negative Outlook'.
Jan Randolph, Head of Sovereign Risk at Global Insight, stated, "Moscow will withdraw energy subsidies in step with its neighbours' moves towards the European Union and NATO, testing Western support-and especially the availability of any emergency financing."
In the Middle East, the situation in Lebanon remains precarious. While emergency aid from Saudi Arabia bolstered the banking system and foreign exchange reserves, the economy's infrastructure was severely battered by military hostilities with Israel. Repair costs will run into billions of dollars. The political situation remains tumultuous and the survival of the pro-West Lebanese government hangs in the balance under pressure from Hezbollah and Syria.
Earlier in the year, the election of a Hamas government in the Palestinian Authority led to the withdrawal of crucial European Union transfer funding to the public budget and suspension of Israeli customs revenues. Public sector salaries did not get paid, protests emerged on the street, and public debt arrears grew, all of which resulted in a rating downgrade by Global Insight. Nevertheless, these politics-driven downgrades were more than matched by the number of sovereign rating upgrades elsewhere in the Middle East. All the main energy exporters, with the exception of Iran, improved their credit worthiness. Energy exporters now represent the second most important official source of funding the U.S. current account deficit after Asia.
Other countries on credit watch include possible overheating economies in Eastern Europe, where aggressive bank lending has been prevalent. Two Baltic countries were denied euro single currency membership on rising inflation, while Slovenia managed to slip through on the financial evidence alone.