If it’s darkest before dawn, then in much of the world, the first few months of 2021 are likely to be the darkest period of the COVID-19 pandemic. 

From a public health perspective, vaccine distributions are facing challenges, and many countries are well into their second or third extended lockdowns. The COVID-19 impact has spilled over into a weak economic and heightened risk outlook, as governments have extended significant support to help citizens and companies cope. 

To help Canadian companies assess and understand risk as they do business around the world, Export Development Canada (EDC) maintains a variety of country risk ratings. One of the core ratings is the Sovereign Probability of Default (SPD), which at a broad level, assesses the risk that a government might default on its payment obligations. 

In 2020, EDC Economics updated SPD ratings for more than 190 countries and territories around the world. Thanks to the extraordinary pandemic, the global oil price shock and the ripples cascading outward from these events, EDC made unprecedented 94 SPD rating changes—almost three times as many as in 2019. 

The vast majority (89%) of our SPD rating changes in 2020 were downgrades, signalling the increasing stress and significantly weaker position many countries are finding themselves in 2021 as the COVID-19 pandemic ebbs. The impacts aren’t being felt equally across countries and our rating changes clearly support that.

Only a handful of downgrades occurred in large countries such as the United Kingdom, France and Italy. The world’s biggest countries are expected to weather the crisis well, thanks to a combination of:

  • strong currencies; 
  • easy access to financial markets to issue significant amounts of debt; 
  • ultra-low interest rates; and
  • credible political systems and monetary authorities. 

Even as they emerged from the shadow of COVID-19 with elevated debt levels, countries with large and diversified economies should be able to manage their debts given the expectation that interest rates will remain low for a prolonged period. With their ability to complete vaccination programs, the economic shadow of 2020 is expected to give way to a dawn in 2021 of stability and growth for many of these countries.

While the bulk of the downgrades in 2020 occurred in emerging markets, it masks key distinctions in risk outlooks. For about one-third of the remaining countries, the critical issue in 2020 wasn’t only COVID-19, but also the double-whammy associated with the collapse in oil prices (as demand fell during an ill-timed, but brief price war between Saudi Arabia and Russia). For Kuwait, Nigeria and Oman, their resource-intensive government finances will benefit in 2021 as COVID-19 ebbs, oil demand and prices recover, and dollars resume flowing, helping close significant deficits. However, the larger debts piled up during the pandemic will leave these governments more vulnerable to future energy price shocks. 

For governments with tourism-dependent economies, including Costa Rica, Dominican Republic, and the Bahamas, the delay may persist well into 2022 or 2023—until large numbers of people resume flying and travelling internationally again. Other lower- and middle-income countries that have needed to access support programs implemented by the Group of 20, the International Monetary Fund and the World Bank, recovery may take even longer as they need to negotiate a return to stability. 

For both country groups, 2021 will likely see risks remain elevated as they wait for the growth and stability from the rest of the world to reach them. But with weaker growth prospects, elevated debt levels and more limited access to international debt markets, any setbacks to the dawning of the post-COVID-19 era will further strain their government’s finances and increase risks.

The bottom line?

The beginning of 2021 will likely mark the turning point for COVID-19 in many parts of the world. But coming into this period, the risks to government finances around the world haven’t been higher in the post-war period, given the increased levels of debt and weak growth experienced in 2020. Monitoring these evolving country risks and economic developments will help you understand the world’s road to recovery and EDC’s Country Risk Quarterly can help keep you informed. 


This commentary is presented for informational purposes only. It’s not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.