In the first of three articles examining improving risk profiles of countries in Euromoney’s country risk survey, Jeremy Weltman looks at one of the Caribbean’s trailblazers.
It has not all been downhill in country-risk terms for nations across the globe grappling with the pandemic and its impact over the past couple of years.
Many sovereign states, despite being downgraded when Covid-19 hit, have weathered the storm and their scores are on impressive, long-term improving trends.
Euromoney’s latest quarterly survey of expert opinions reveals that 60 out of 174 countries have higher risk scores than they did a year earlier. Of those, there are 30 with double-digit improvements in both their five- and 10-year score trends.
Several of the improvers, mainly in Africa, but also in Eastern Europe and central Asia are low-scoring, high-risk options, while three are very low risk nations that ECR has highlighted previously over the years – namely Israel, Portugal and Uruguay.
There are nevertheless a number of countries that have seemingly slipped under the radar. They tend to be smaller frontier or emerging markets with strong economic, political and/or structural fundamentals forcing them up the country rankings – good reasons for investors to tune in to them.
The Dominican Republic, which is currently 49th in the global risk rankings, is a prime example, with its total risk score having risen more than any of the other top-30 trend improvers over the past year alone.
Survey panel expert Odalis Francisco Marte, deputy director of the Central American Monetary Council, puts this down to a combination of good policy and good fortune.
The pandemic, he says, arrived at a time of solid macroeconomic fundamentals, with strong growth and low inflation. “Also, the smooth political cycle change in 2020 gave the private sector the needed confidence to assume policy continuity with the new ruling political party,” adds Marte.
After 16 years of rule under the Dominican Liberation Party, voters opted for the Modern Revolutionary Party led by the economist, businessman and current president, Luis Abinader. He chose wisely not to replace central bank governor Héctor Valdez Albizu, whose experience was welcomed, especially by financial institutions and creditors.
Marte explains the central bank implemented a broad set of expansionary monetary policy measures, including interest-rate reductions and additional liquidity, which the private sector responded to with increased borrowing.
This was complemented by fiscal policy stimulus on social programmes to support vulnerable groups, albeit followed by a more conservative approach this year with greater expenditure control limiting the deficit.
The Dominican Republic has also benefited from the recovery of the US economy, helping to improve its balance of payments.
“This has meant a fast recovery of sectors linked to international trade, especially free zones and tourism”, Marte says. “Also, remittances [from overseas migrant workers] have increased substantially.”
Consequently, while the country is shouldering a larger debt burden because of the crisis, the recovery is impressive, with 10% real-GDP growth pencilled in for 2021, an improving labour market, and smaller current-account deficit.
Marte goes on to mention that the instability in neighbouring Haiti is a considerable security threat, but he notes tha the Dominican Republic is establishing alliances with other countries, notably Panama and Costa Rica, that will be conducive to investments.
As well as improvements to macroeconomic variables, Marte also sees a stronger outlook for policymaking and anti-corruption, as the government has pledged to pursue independent prosecutions. He notes a growing perception of confidence in the country’s democratic institutions, with less tolerance for graft, helping to improve the political risk outlook.
The long-running trial involving Brazilian firm Odebrecht resulted in a couple of convictions for bribe-taking, while Abinader has already dismissed some high-ranking government officials, including ministers. This has sent out a warning that there is no tolerance for corruption in his administration.