Country Risk Quarterly—Summer 2022
EDC monitors the impacts of COVID-19 and the conflict in Ukraine on Canada and the global economy.
Top 5 country risk findings:
1. The aftermath of the COVID-19 pandemic and Russia’s invasion of Ukraine have created a cocktail of debt hangovers, surging commodity prices, record inflation and rising interest rates—not to mention, an outlook of slowing economic growth and protracted geopolitical tensions. These threats are raising macroeconomic and political volatility, and ultimately, country risk.
2. A key risk is the global spread of political violence. Countries near the geopolitical battlegrounds of Eastern Europe and East Asia are experiencing rising tensions and external threats. At the same time, grievances and protests stemming from high inflation and pandemic scars mean that domestic risks to political stability are becoming a global phenomenon—as evidenced by protests in Sri Lanka, Peru, Kazakhstan, Ghana, and the Balkans.
3. As a result of COVID-19, governments shelved important structural reforms to focus on dealing with the global health crisis. With the ebbing of the pandemic and global stimulus, increasing economic headwinds and dwindling policy consensus are raising political instability and polarization. Recent political shifts in Latin America offer multiple examples of how social turbulence, anti-incumbent sentiment and the erosion of centrist political parties can intensify governability and institutional risks, and hinder reform momentum.
4. Significant, sustained increases in the prices of key global commodities, like food and fuel, are being felt across the world. Major commodity exporters are reaping significant economic and financial benefits, while importers are facing higher import bills and the costs of containing inflationary pressures. In Europe, an elevated dependence on Russian energy—and Russia’s willingness to “weaponize” its natural gas supply—is forcing a widespread and costly challenge to the continent’s energy supply and security heading into winter.
5. These challenges are pushing more sovereigns into debt distress and could drive further rating downgrades this year as the impacts of these various shocks are fully realized.
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