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In the ranking of 66 economies across four potential sources of peril, Sri Lanka is at 61, with Angola, Lebanon, Bahrain, Zambia and Venezuela ranked below us.
The ranking looked at public debt, foreign debt (both public and private) and borrowing costs (proxied where possible by the yield on a government’s dollar bonds).
“We also calculate their likely foreign payments this year (their current-account deficit plus their foreign-debt payments) and compare this with their stock of foreign-exchange reserves. A country’s rank on each of these indicators is then averaged to determine its overall standing,” the article said.
According to the magazine the strongest countries, such as South Korea and Taiwan, are overqualified for the role of emerging markets.
Botswana is the highest-ranked country in the world according to this survey.
Many bigger economies, including Russia and China, also appear robust. Most of the countries “that score badly across our indicators tend to be small,” the Economist noted.
In South Asia, Bangladesh, one of the better-managed countries in the region did well, coming in at 9, above China and next to Saudi Arabia.
India ranked 18 and Pakistan 43, mostly because the latter has recently accepted an IMF package and has low foreign debt. India’s debt is mostly domestic and therefore did not pose an external peril, the magazine said.
Sri Lanka is bringing up the rear saddled with heavy foreign and domestic debt.
The Economist said that the last thirty countries in the ranking owe a total of US $17 Trillion.
Eighteen, of that thirty including Sri Lanka have had their ratings cut by Fitch.
The countries in the bottom thirty including Sri Lanka are “in distress or flirting with it,” the magazine said.
The Economist predicts “the damage to exports will be acute. Thanks to low oil prices, Gulf oil exporters will suffer a current-account deficit of over 3% of GDP this year, the IMF reckons, compared with a 5.6% surplus last year. When exports fall short of imports, countries typically bridge the gap by borrowing from abroad. But the reversal of capital inflows has been matched by higher borrowing costs.”
In March the risk premium that emerging markets must pay buyers of their dollar bonds rose to distressed levels (over ten percentage points) for nearly 20 governments—a record number, says the IMF.
To weather the crisis, emerging economies may need at least $2.5trn, the fund reckons, from foreign sources or their own reserves. One way to ensure countries have more hard currency is to stop taking it from them. (Colombo May 02, 2020)
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