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Political and Policy Risks Weigh on EM Sovereign Creditworthiness in 2020

Heightened tensions in the Middle East following the killing of Iranian general Qassem Soleimani as well as a wave of protests reflecting public discontent centred on economic issues has underlined the vulnerability of emerging markets (EM) to political risk. 

outlooks 2020

Credit Journal: 2020 Credit Outlooks

Our Credit Journals are a curated compilation of Fitch Ratings’ in-depth research and commentary. This special edition covers our global sovereigns and macroeconomic credit outlooks for 2020.

Download the 2020 Credit Outlooks edition.

outlooks 2020

Fitch’s View of the World - Global Sovereign Outlook 2020

Speaking at our Credit Outlook Conference in London, James McCormack, Global Head of Sovereign and Supranational Ratings, discusses Political Risks noting “there could be a significant change in the direction of economic policy in the U.S., which could have global implications”

View all Outlooks: 

Credit Outlooks 2020

Global Sovereigns Outlook 2020

US-China Deal Helps World Growth Stabilise; Uncertainties Persist

The signing of the US-China "Phase One" trade deal will boost business confidence and supports our view that global economic growth will stabilise in 2020.

Turkish Monetary Policy Credibility Still a Key Rating Weakness

Weak monetary policy credibility and the large reduction in Turkish real interest rates since last summer continue to weigh on Turkey's rating of 'BB-' with a Stable Outlook, Fitch Ratings says.

Oman's Fiscal Challenges to Remain Post-Succession

The elevation of Haitham bin Tariq al-Said as Oman's new Sultan will entail continuity of fiscal policies, Fitch Ratings believes. The rapid succession is in line with our long-standing assumption of a smooth transition from his cousin, Sultan Qaboos, who died January 10 aged 79. Twin fiscal and external deficits and rising indebtedness remain the key risks to Oman's BB+/Stable rating, which was affirmed in July 2019.

Sharp Rise in Cross-Strait Tensions Unlikely Despite DPP Win

The outcome of Taiwan's elections further underscores the geopolitical risks associated with the island's complex relations with the mainland, as captured in Fitch Ratings' 'AA-' rating and Stable Outlook. However, the re-election of President Tsai Ing-wen, and the renewed majority for her Democratic Progressive Party (DPP) in the legislature, is unlikely to mark a sea change in cross-Strait relations.

Webinar

2020 Outlook for Latin America Sovereigns

Fitch expects mild economic recovery for Latin America in 2020. Growth will remain below potential for most countries. Material downside risks persist especially in the context of slowing US and China growth coupled with domestic idiosyncratic risks. Join us for a webinar with the Latin America Sovereign Ratings Group to discuss the outlook for the region.
 

Listen Now

Webinar

Middle East Sovereigns Ratings - Implications of current events and 2020 Outlook

 Topics of discussion will include:

  • Implications of rise in US-Iran tensions for MENA sovereigns
  • Oman after the succession
  • Lebanon – scenarios through the crisis
  • GCC fiscal prospects: breakeven oil prices, debt issuance, SWFs and contingent liabilities
  • Non-GCC MENA – fiscal trends and social pressures     

Listen Now

Political Uncertainty Persists as Spain's New Govt Takes Office

The formation of Spain's new government is consistent with our expectations in our most recent sovereign rating review, but political uncertainty will persist, Fitch Ratings says. The government only narrowly secured parliamentary backing, and the Catalan regional government's policy of pursuing independence remains a potential source of political volatility.

New Austrian Government Looks Set to Maintain Fiscal Prudence

Austria's new government looks set to maintain prudent fiscal settings under the policy platform that it has put forward, Fitch Ratings says. This would be consistent with our expectations and underscores our view that debt/GDP will continue to fall.

Rise in US-Iran Tensions Already Captured in Sovereign Ratings

The potential for a broader escalation of conflict in the Middle East has increased with the death of senior Iranian general Qassem Soleimani, but remains contained as the US and Iran do not seem to have an interest in a full-scale confrontation, Fitch Ratings says. 

Fiscal Pressures Raise LatAm Vulnerability in Next Downturn

Growth in public debt burdens and fiscal deficits in many Latin American countries over the past decade will undermine the ability of governments to respond to shocks and a sharper than expected global slowdown in 2020. 

Outlooks 2020: The Coming Storm

High Indebtedness, Low Growth Shapes 2020 Global Credit Outlook

A combination of slowing economic growth, sustained low interest rates and unprecedented levels of indebtedness will broadly influence the global credit outlook in 2020, says Fitch Ratings. The aggregate rise in global indebtedness in 2019, which occurred as monetary authorities reversed course on rate hikes, will increase vulnerabilities for key sectors in the event of a more rapid than expected economic downturn.
 

Read the ReportFitch Ratings 2020: The Coming Storm

WAEMU Currency Reforms Unlikely to Affect Sovereign Ratings

The currency reforms in the West African Economic and Monetary Union (WAEMU) announced by Cote d'Ivoire's President, Alassane Ouattara, on 21 December 2019 are mainly symbolic, as the peg to the euro will be maintained and the currency will continue to benefit from a convertibility guarantee, says Fitch Ratings.

ratings action

Fitch Affirms South Africa at 'BB+'; Outlook Negative

Fitch Ratings has affirmed South Africa's's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB+' with a Negative Outlook.

event

Escaping the Climate Debt Trap: Fitch Ratings, IIF, Refinitiv Breakfast Seminar Davos

January 24th, 7:00am – 8:30am

In conjunction with the Institute of International Finance and Refinitiv, Fitch Ratings is delighted to invite you for a breakfast seminar at the 2020 Davos Summit in Switzerland for a discussion on our Global Economic Outlook.

Moderator: Sonja Gibbs, Managing Director and Head of Sustainable Finance, Institute of International Finance

Register now

Webinar

Emerging Europe Sovereign Ratings: 2020 Outlook

Fitch Ratings hosted a webinar with Paul Gamble, Head of Emerging Europe Sovereigns, and Ed Parker, Head of EMEA Sovereigns, to discuss the 2020 outlook for Emerging Europe Sovereigns. 


Listen Now

outlooks 2020

China Credit Outlook

Stephen Schwartz, Head of APAC Sovereigns, discusses the outlook for China sovereign, banking sector and LGFVs with Andrew Fennell, Lead China Sovereign Analyst, Grace Wu, Head of Greater China Banks, and Terry Gao, Head of APAC Public Finance.

 

View all Outlooks: Credit Outlooks 2020

Rating Action

Fitch Affirms the UK at 'AA'; Off Rating Watch Negative; Outlook Negative

The outcome of the UK general election on 12 December means it is highly likely that the UK will leave the EU with a Withdrawal Agreement on 31 January 2020. This removes the short-term risk of a disruptive 'no-deal' Brexit, where the UK would leave the EU without a Withdrawal Agreement in place and is reflected in the removal of the RWN and affirmation of the UK's 'AA' rating.

US-China Trade Tensions Eased But Not Resolved

The "Phase One" trade deal reported to have been reached between US and Chinese negotiators offsets much of the damage done to global trade and activity prospects from earlier US plans to raise tariffs in October and December, according to Fitch Ratings. Nevertheless, trade tensions remain high and renewed escalation remains a significant risk.

Fitch Downgrades Lebanon to 'CC'

The downgrade of Lebanon's ratings reflects Fitch's view that a government debt restructuring or default is probable owing to acute political uncertainty, de facto capital controls and damaged confidence in the banking sector that will deter capital inflows needed for Lebanon to meet its financing needs. 

outlooks 2020

Service Sector Resilience to Help Global Growth Stabilise in 2020

The resilience of the service sector and consumer spending growth in the advanced economies should help global growth stabilise next year, after a sharp decline in 2019, says Fitch Ratings in its new Global Economic Outlook (GEO).

View all Outlooks: 

Credit Outlooks 2020
Global Economic Outlook

Smoother Italy-EU Relations Do not Remove Fiscal Uncertainty

Italy's Draft Budgetary Plan (DBP) for 2020 and the European Commission's response confirm Fitch Ratings' view that the change of government in September has reduced the near-term risk that Italy disengages from EU fiscal rules and processes. However, it also highlights the likelihood of friction and the continuing absence of a credible longer-term strategy to reduce public debt in the face of weak real and nominal growth.

outlooks 2020

APAC Sovereign Outlook Stable despite Growth Challenges

December 11, 2019
4:00pm HKT

Join Fitch’s senior analysts from APAC Sovereign team to discuss the 2020 outlook - Financial buffers and policy easing help sustain growth in APAC.

Register Now

Related Reports

View all outlooks: Credit Outlooks 2020

Kuwait Political Disputes to Delay Debt Issuance, Reform

The Kuwaiti government's resignation and subsequent cabinet reshuffle point to political frictions that could delay new debt issuance and weigh on broader fiscal and economic reforms, Fitch Ratings says. Kuwait has been the slowest reformer in the Gulf Cooperation Council in recent years, partly due to these frictions and partly due to its exceptionally large sovereign assets, which could finance decades' worth of fiscal deficits.

Western Europe Sovereign Ratings- 2020 Outlook

Fitch Ratings hosted a webinar with Michele Napolitano, Head of Western Europe Sovereigns, and Ed Parker, Head of EMEA Sovereigns, to discuss the 2020 outlook for Western Europe Sovereigns.

Listen Now

outlooks 2020

Emerging Europe Sovereign Outlook Stable in 2020

Fitch Ratings has a Stable Outlook for sovereign credit ratings in emerging Europe in 2020 following a wave of upgrades in 2019. A weaker external environment will offset relatively buoyant domestic demand and test the recent improvement in public finances in CEE. Policy frameworks in the CIS will continue to evolve, with reform momentum appearing strong, most notably in several sub-investment-grade sovereigns.

outlooks 2020

Sub-Saharan Africa Sovereign Outlook Stable but Upward Debt Risk

Sovereigns in the SSA region largely absorbed the earlier commodity price shock, and will see median government debt decline in 2020 after a marginal reduction in 2019. However, weak PFM, persistent high-priority infrastructure needs and pressure for improved public services raise risks for debt trajectories. 

outlooks 2020

Fitch Ratings Sees Limited Debt Reduction in Western Europe

The prospect of low interest rates for longer and additional quantitative easing will support debt dynamics in western European sovereigns but also reduce pressure on governments to reduce debt levels and implement structural reforms.

Escaping Japanification Difficult for Eurozone If It Takes Root

The eurozone has some of the symptoms of 'Japanification', but not the full-blown condition. Critically, it has avoided outright price deflation - a key element of the experience in Japan. However, if Japanification were to become entrenched, it would leave the eurozone more vulnerable to pernicious debt deflation, prolonged stagnation, rapidly rising government debt ratios and sovereign rating downgrades

FTEurozone at risk of Japan-style stagnation, Fitch warns

Fixed Interests Podcast: Demographic trends

Demographic trends such as declining or rapidly expanding populations, a bulging youth cohort or pronounced ageing can create risks to sovereign creditworthiness. Key channels of impact include stagnant potential GDP growth, unsustainable pension systems and public debt, and risks to social and political stability. Demographic forces are already affecting some sovereign ratings and Fitch Ratings believes they are likely to become a more important driver over the medium term.

The Cost to Sovereigns of Support for Supranationals

The cost of support to supranational entities for their controlling sovereigns is overall limited relative to GDP. On average, legally binding obligations, which constitute contingent liabilities, represent 1.4% of GDP. However, for some emerging countries, these commitments are much larger. 

outlooks 2020

Oil and Politics Risks to Stable MENA Sovereign Outlook

Outlooks are mostly stable on sovereign ratings in the Middle East North Africa Region (MENA), but renewed weakness in oil prices and regional and domestic political developments continue to pose a downside risk to ratings in 2020.

Outlooks 2020

2020 North American Sovereign Outlook Stable despite Fiscal Pressures

Fitch Ratings expects North American sovereign ratings to be stable in 2020. Both the U.S. and Canada are rated 'AAA' with a Stable Outlook.

Sovereign Wealth Funds Key to High GCC Ratings

The sovereign wealth funds (SWFs) of Abu Dhabi, Kuwait and Qatar provide two-to-five notches of uplift to their sovereign ratings, Fitch Ratings says in a new report on SWFs in the Gulf Cooperation Council (GCC).

Aramco IPO Funds May Help Offset Fresh Saudi Austerity Push

Saudi Aramco's IPO will have little direct fiscal effect, but could help offset the economic impact of renewed government austerity measures by allowing the Public Investment Fund (PIF) to boost domestic investments, Fitch Ratings says.

Outlooks 2020

Latin American Sovereigns Face Persistent Rating Pressure

Downward rating pressures will persist in 2020 for Latin American sovereigns, Fitch Ratings says, with seven of 19 on Negative Outlook compared with five (plus one on Rating Watch Negative) at end-2018. 

rating action

Fitch Affirms Egypt at 'B+'; Outlook Stable

Fitch Ratings has affirmed Egypt's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at 'B+' with a Stable Outlook.

Kenya Loan Rate Cap Repeal Positive for Banks, Supports Growth

The repeal of Kenya's lending rate cap is positive for the country's banks as it will boost profitability, but loan margins are unlikely to return to pre-cap levels, Fitch Ratings says. It will also support economic growth through supporting a modest rebound in lending and improving monetary policy transmission.

Webinar

Ukraine: Post-Election Opportunities & Challenges

11/25/2019 at 9:30 AM (EST) | 2:30 PM (GMT) 

Fitch Ratings is hosting a webinar with Erich Arispe, primary analyst on Ukraine, and Paul Gamble, Head of Emerging Europe Sovereigns, to discuss the opportunities and challenges in Ukraine.

Register Now

Global Sovereigns Outlook 2020

Global sovereigns enter 2020 with the world economy slowing and policymakers debating what to do about it. Most countries are exposed to the trade dispute between China and the US, making it more difficult to calibrate domestic policy settings given the international uncertainties.

 

Download the Global Sovereigns Outlook to learn more

rating action

Fitch Affirms China at 'A+'; Outlook Stable

China's ratings are supported by the country's robust external finances, strong macroeconomic performance, and size as the world's second-largest economy. The ratings are primarily constrained by large structural vulnerabilities in the financial sector, relatively low per capita income, and weaker governance metrics than those of 'A' rated peers.

Political Risk An Acute Issue for Latin American Sovereign Ratings

Recent political volatility in a number of Latin American countries, including Argentina, Bolivia, Chile, Ecuador and Peru, reflects a broader theme of rising political risk that could amplify negative sovereign credit trends in the regions. There are currently no positive Ratings Outlooks among Latin American sovereigns and a large number of Negative Outlooks.

Fiscal Policy Easing Ahead in 2020

Global sovereigns enter 2020 with the world economy slowing and policymakers debating what to do about it, says Fitch Ratings. Most countries are exposed to the trade dispute between China and the US, making it more difficult to calibrate domestic policy settings given the international uncertainties. 

Path to Spanish Political Stability Remains Uncertain

The preliminary coalition agreement between Spain's Socialist Party (PSOE) and Unidas Podemos (UP) supports our view that election fatigue will incentivise politicians to form a government. However, the path to forming a lasting majority government remains challenging.

Election Pledges Heighten UK Fiscal Risks

Spending plans from the two largest UK political parties suggest that the period of budget deficit reduction is over, Fitch Ratings says. We anticipated fiscal loosening when we affirmed the UK's 'AA' sovereign rating in October but, while the scale and timing remains uncertain, risks to our fiscal projections have risen substantially.

Fitch Affirms Bahrain at 'BB-'; Outlook Stable

Bahrain's ratings are supported by strong financial backing from richer neighbours in the GCC, a large and developed financial sector and high GDP per capita and human development indicators relative even to the 'BBB' median. Weak public finances, high fiscal dependence on oil revenue and political constraints all weigh on the ratings

Fitch Revises Cote d'Ivoire's Outlook to Positive; Affirms at 'B+'

Cote d'Ivoire's economy continues to show resilience and stability despite the worsening external backdrop. The government's continued adherence to fiscal prudence sets Cote d'Ivoire on track for general government debt to stabilise well below the current 'B' median over the medium term.

rating action

Fitch Upgrades Mozambique to 'CCC'

Fitch Ratings has upgraded Mozambique's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC' from 'RD' and Long-Term Local-Currency IDR to 'CCC' from 'CC'.

Webinar

Chilean Unrest: Challenges Ahead

On Demand

Join us for a webinar with the Latin America Ratings Group to discuss Chile’s ratings and the risks the protests pose to economic growth, the fiscal deficit and debt trajectory, and President Piñera’s reform agenda as well as the corporate, bank and insurance sectors in the country.

Register Now

 

Related: Chilean Unrest Has Mixed Effect on Corporate, Sovereign Credit

Most GCC Budget Positions Weakening on Lower Oil Prices

Headline fiscal balances will weaken across much of the Gulf Cooperation Council (GCC) in 2019 and 2020, maintaining pressure on sovereign and external balance sheets, Fitch Ratings says. Last year's fiscal policy loosening has been exacerbated by lower oil prices.

20/20 Vision

Manufacturing and Labour Market Disconnect Persists in Advanced Economies

The contrast between labour market performance and manufacturing activity indicators in the advanced economies is persisting. There has been widespread further weakness in recent months in Manufacturing Purchasing Managers' indices across larger economies including eurozone, UK, Germany, Spain, Russia and South Africa.

Fitch Revises Turkey's Outlook to Stable; Affirms at 'BB-'

Fitch Ratings has revised the Outlook on Turkey's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Stable from Negative, and affirmed the IDR at 'BB-'. Turkey has continued to make progress in rebalancing and stabilising its economy, leading to an easing in downside risks since our previous review in July.

APAC Frontier Sovereigns Diverge; Vietnam Achieves Stable Growth

Diverging APAC frontier market sovereign ratings in recent years reflect Vietnam's lengthening record of macroeconomic stability while Mongolia, Sri Lanka and Pakistan have faced external vulnerabilities. Our Positive Outlook on Vietnam suggests this divergence could continue, notwithstanding the varying degrees of stabilisation seen in the other three sovereigns' credit profiles.

Argentina Debt Challenges Go Beyond Liquidity

Argentina's new president-elect, Alberto Fernandez, faces urgent policy challenges including turning vague campaign promises into a detailed economic plan, renegotiating the IMF Stand-by Arrangement, and restructuring debts with bondholders.

Related

Contacts

James McCormack

Global

James McCormack

Analytical Group Head

+852 2263 9625

Tony Stringer

Global

Tony Stringer

Analytical Chief Operating Officer

+44 20 3530 1219

Jose Santos

Global

Jose Santos

Business Group Head

+34 93 323 9044

Brian Coulton

Economics

Brian Coulton

Analytical

+44 20 3530 1140

Sing Chan Ng

APAC

Sing Chan Ng

Business

+65 6796 7210

Stephen Schwartz

APAC

Stephen Schwartz

Analytical

+852 2263 9938

Ed Parker

EMEA

Ed Parker

Analytical

+44 20 3530 1176

Claire Dopson

EMEA

Claire Dopson

Business

+44 203 530 1405

Paul Gamble

Emerging Europe

Paul Gamble

Analytical

+44 20 3530 1623

Jan Friederich

Middle East & Africa

Jan Friederich

Analytical

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Shelly Shetty

Latin America

Shelly Shetty

Analytical

+1 212 908 0324

Diego Alcazar

Latin America

Diego Alcazar

Business

+1 212 908 0396

Charles Seville

North America

Charles Seville

Analytical

+1 212 908 0277

Michele Napolitano

Western Europe

Michele Napolitano

Analytical

+44 20 3530 1623

Arnaud Louis

Global

Arnaud Louis

Analytical

Supranationals

+33 144 299 142

Frank Laurents

North America

Frank Laurents

Investor Outreach

+1 212 908 9127

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