Risk Management

Four Countries Where Political Risk Is Rising

In its quarterly report on political risk, Aon downgraded the risk ratings of four nations.
Vincent RyanOctober 17, 2017
Four Countries Where Political Risk Is Rising

Political risk is on the rise in some countries, with insurer Aon cutting the political risk ratings of four of them in its quarterly report. The third quarter marked the first time “in some time” that the number of countries experiencing an increase in political risk outnumbered those experiencing a decrease, Aon said.

The four countries that Aon highlighted in its quarterly report were Togo, Chad, the Solomon Islands, and Barbados. But the insurer also spotlighted mounting risks in Iran, North Korea, and Brazil, even though those country’s ratings remained unchanged for now.

Among the downgrades, Aon raised the political risk scores of Togo and the Solomon Islands to “high” from “medium-high,” thanks to a modest increase in political violence. The risk score of Chad went from “high” to “very high,” due to “continued weakening of oil revenues” and the inability to cope with the resulting external financing shocks.

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The political risk rating also rose in the Caribbean country of Barbados, where Aon said a poor fiscal outlook from an increase in the nation’s debt and deficits “has increased sovereign non-payment risk modestly.” Its risk rating was raised to “medium,” up from “medium-low.”

In other areas spotlighted by Aon, the insurer said the White House’s new stance on the Iran nuclear deal has injected an element of uncertainty into a country where political risk is already high.

While abandoning the deal, called the Joint Comprehensive Plan of Action, remains a risk rather than a likely outcome, Aon said, “the uncertainty surrounding policy implementation and the divergence between [the United States] and other countries’ foreign policy toward Iran undermine the investment outlook.”

Aon said it did not see Iran exiting the deal and it doubts “a global consensus can re-emerge to force Iranian oil production offline,” which would be devastating to Iran’s economy.

In North Korea, another nation with which the White House is taking a contentious stance, Aon said the “intensifications” in economic sanctions on businesses trading, combined with military drills, “have augmented the risk of strategic accidents and escalations.” It noted that businesses may suffer from increases in insurance costs in the country.

Finally, Aon noted that political risk is beginning to rise again in Latin America and the Caribbean, in part due to weak economic growth and low investment.

Aon said the remainder of 2017 and 2018 “will bring a series of extensive elections across most of the region’s economies, which will limit the implementation of reforms in the near-term.” The insurer said the ruling parties in Mexico, Brazil, and Chile are “struggling to maintain ground.”

In Brazil, in particular, delays in passing some of the government’s key fiscal measures as well as ongoing corruption investigations “continue to threaten the country’s investment recovery.”

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