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Political Risk Index - Summer 2020

Analysing patterns in the world’s most vulnerable countries

Credit, Political Risk and Terrorism
COVID 19 Coronavirus

By Cynthia Dugan | September 15, 2020

We have been learning, over the past few months, about the importance of COVID-19 as a factor in political risk.

We now know a little more about the coronavirus itself and have some experience of the strain that it is putting on governments around the world – many of which, less than six months ago, were counting on an appreciable degree of economic growth in 2020. We are also beginning to discern the legacy of debt that the pandemic will leave behind, as and when, it finally departs.

We can now be more confident that medical treatments are likely to reduce the risks from COVID-19 and that a vaccine will, at some stage, reduce the risk of contracting the disease. However, the next six to nine months will remain an extremely risky period. We now realise that transmission of the virus by people who present no symptoms is a much larger problem than initially thought. Earlier studies suggested that asymptomatic transmission accounted for 5% of cases, but the current consensus puts that number closer to 40%. Winter in the Northern Hemisphere, which will see people in close and prolonged contact in indoor settings with poor ventilation is set to increase transmission rates. Meanwhile, cases around the world are accelerating as the pandemic builds momentum amid the hasty easing or disregard of costly lockdown provisions.

IMF Managing Director Kristalina Georgieva said that EM states may need more than 2.5 trillion USD in fiscal support to get through the COVID-19 crisis.

For emerging market (EM) countries, a category that includes many of the countries on the Index, the pandemic is proving an economic challenge as much as a health crisis. In July 2020, IMF Managing Director Kristalina Georgieva said that EM states may need more than 2.5 trillion USD in fiscal support to get through the COVID-19 crisis. Most cannot issue local-currency debt internationally and many rely on income from remittances and tourism, both of which essentially collapsed in the second quarter of 2020.

Many EMs, and not just the most vulnerable, are using up their foreign reserves, and if capital flight continues, some may be only 3-6 months away from having to institute capital controls. EMs need foreign reserves to pay for essential imports, as most of their suppliers will not accept their local currency. Foreign currency is usually obtained through exporting goods and services; attracting more capital inflows than outflows, including issuing bonds globally in a foreign currency; and through aid. Each of these has been significantly affected by the global impact of the pandemic.

This edition provides some reason for encouragement, although it may simply reflect a pause after the first rush of concern over COVID-19. At best, it may reflect one step forward after two steps back, and we should expect to see the virus continuing to disrupt societies and economies around the world during the second half of 2020.

Read the Political Risk Index Summer 2020 >

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