Coming Soon in Our June 2022 Political Risk Reports

PRS’ coverage of the Americas this month includes reports on Guyana, Jamaica, Panama, Nicaragua, Uruguay, and Ecuador, where the beneficial economic impact of higher prices for the country’s oil is being undermined by rising domestic inflation and the effective cessation of trade with Russia and Ukraine, two of the main customers for the country’s agricultural exports and the source of a sizeable percentage of tourist visitors. Renewed economic troubles are compounding the already significant political difficulties encountered by President Guillermo Lasso, which include a surge in violent crime and the center-right administration’s minority status in the Congress.

The risk analysis will focus on potential threats to political stability, which will become more difficult to keep in check if Lasso’s approval rating weakens, and what that might portend for the government’s efforts to fend off a renewed debt crisis. Although increased oil revenues provide cause for optimism that the government can remain on good terms with the IMF, political upheaval that casts doubt on the willingness or ability of the administration to maintain a liberal policy course would have serious negative implications for economic stability over the next 12-18 months.

In Asia, this month, we consider the political risks affecting three key emerging markets, Indonesia, Malaysia, and Thailand, all facing economic pressures caused by inflation, tightening monetary policies, and slowing economic growth around the world.

Our report on Malaysia weighs up the prospects of an early general election that Prime Minister Ismail Sabri Yaakob seems to be resisting as tensions continue within his support party, the United Malays National Organization (UMNO) leading the Barisan Nasional (BN) coalition which is pushing to improve its political standing. The government is a hotchpotch of multiple political parties and alliances that only has a slim majority. The wavering support of the four-party opposition Pakatan Harapan (PH) alliance which entered an unusual confidence and supply arrangement in the wake of the political crisis last year is in danger of crumbling, with the PH opposed to the government’s plan to reintroduce the Goods and Services Tax as a crucial revenue-raising measure on the grounds that it will only worsen the cost-of-living crisis. Our report also investigates the changes occurring within Anwar Ibrahim’s People’s Justice Party (PKR), noting the rise of Rafizi Ramli, the party’s newly elected deputy president calling for reforms to make the PKR more electable as we try to make sense more broadly of the country’s complex, and often changeable political environment.

Our report also reviews recent state elections, the plans to ban politicians from switching parties in the legislature, and the televised economic debate held between Ibrahim and the disgraced former prime minister Najib Razak now making a comeback, which focused on whether to bail out the huge oil and gas company Sapura Energy. As in our other featured countries, our report rounds out by looking at emerging economic risks affecting growth, inflation, and the fiscal and external payments.

Our coverage of Western Europe this month includes fully updated reports on Denmark and the Netherlands, as we analyze their respective energy security risks following Russia’s invasion of Ukraine. Towards the end of May, Gazprom, the Russian energy giant, confirmed that it would suspend its supplies of natural gas to the partly state-owned Dutch trader GasTerra in response to the latter’s decision not to pay in roubles. This would involve too much operational risk by breaching EU sanctions on Russia and requiring an account to be set up in Moscow with Gazprombank. Our report focuses on the implications of this decision, in terms of its effect on gas prices and hence inflation (already in double digits), as well as how the government plans to replace a supply line that is currently responsible for 15% of the country’s total gas supplies, and political fallout for the coalition government led by Prime Minister Mark Rutte that was eventually formed months after the elections were held in March 2021. Our report goes on to assess a scandal surrounding Rutte over his apparent deletion of official text messages that were deemed to be unimportant, prompting a parliamentary debate over public transparency. We also investigate how this will play out at a difficult time for the prime minister, who has been in power now for 12 years and whose popularity ratings are floundering. We around out by considering the current prospects for a range of macro-fiscal variables with a keen eye on economic growth and inflation through to 2023.

Turning to the Middle East and North Africa, our coverage in June will include reports on Iraq, Libya, and Tunisia, where efforts by President Kais Saied to end a political crisis triggered by his constitutionally dubious seizure of power continues to be impeded by the president’s refusal to engage with the opposition parties from the suspended Parliament and a lack of cooperation from the politically powerful UGTT labor federation, which has declared that it will not participate in a presidential committee formed to propose economic reforms and draft a new constitution. The analysis will focus on assessing what the impasse implies for Tunisia’s chances of concluding a lending agreement with the IMF, which has warned that the country’s debt burden is unsustainable, and examining the implications of failing to do so, including the impact on turmoil risk.

Over in sub-Saharan Africa, PRS includes a shorter update on Mozambique along with more detailed analyses on the investor risks in oil-producing nations Cameroon and Gabon. Cameroon is benefiting from high and rising oil prices, and official creditor engagement, including valuable project financing from the EU and IMF supporting development. However, all is not well given the country’s longstanding tensions between the francophone majority and anglophone minority communities, which has seen clashes continue between separatists and the military in the restive English-speaking western regions. Our report looks into how the crisis is developing and affecting neighboring Nigeria, and its impact on political stability and policymaking, bearing in mind the failing health of the 89-years old president, Paul Biya, whose difficulty standing and visits from a doctor suggest his ability to serve out a full term to 2025 must be in some doubt. Our report weighs up the social stability risks in a country that, like others, is succumbing to higher inflation pushing up the cost of living and where anti-government rioting in 2008 due to soaring energy and food prices left an estimated 100 people dead. Our report goes on to make a full assessment of the macro-fiscal outlook, including the structural reforms that are part of the conditions attached to the IMF’s generous financing arrangement.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.