Climbing seven places this year to 23rd in Euromoney Country Risk’s global rankings, South Korea has managed to convince ECR’s economists and other country-risk experts of its merits in spite of the challenges facing the government of president Park Geun-hye.
They include the political fallout from the Sewol ferry disaster, the constant state of heightened tensions with Pyongyang and the ever-present risk of won appreciation against the yen harming South Korea's hi-tech exports competing against Japan’s.
As ECR has previously remarked upon, Korea’s macro-strengths are undeniable. Despite concerns about household debt and banking-sector exposures, economic growth is improving thanks to solid domestic demand and a diversified market share of exports to the US, Europe and China, where prospects remain favourable.
Fiscal stimulus has been achieved without causing a major deterioration in budget finances, leaving the deficit and debt burden below 2% of GDP and 40% respectively. Inflation is low and a current-account surplus guaranteed.
Asia’s rising star is only seven points behind top-rated Chile, the best performer within the second of ECR’s five tiered categories synonymous with a credit rating of A- to AA. Korea is rated AA- by Fitch, Aa3 by Moody’s and A+ by S&P.
Poland and Israel also improving
But South Korea isn’t the only second-tier sovereign causing a fuss.
Having avoided eurozone debt and Ukrainian crisis contagion, Poland has risen three places in the rankings this year to 29th and in the process has overtaken falling Estonia.
As with Korea, Poland's macroeconomic risk factors have been upgraded, not least the growth and employment outlook, with the European Commission predicting a 3.2% rise in real GDP for this year and an unemployment rate falling below 10%.
Political risk indicators have deteriorated, but all six factors still score more than 6 out of 10; government stability, institutional risk and the possibility of non-payment by the government all chalk up a comforting 7 out of 10.
Israel, another second-tier sovereign, unsurprisingly has a more diverse political risk profile, but its scores have improved and experts acknowledge that despite the risk of instability in the coalition government, repatriation risk (measuring 8.2 out of 10) is never a problem.
Scores for four of Israel’s five economic risk factors have been upgraded, notably for bank stability and the government’s finances.
Keep an eye too on LatAm’s leading pair
Tier-3 sovereigns Colombia and Uruguay, both rated triple-B by all three agencies, have climbed four and three places respectively to 42nd and 48th in the rankings.
Corruption is still a big problem for Colombia; bank stability for Uruguay.
Yet just one point now separates Colombia from Brazil, one place higher in the rankings, and all five of Uruguay's political risk indicators have been upgraded this year, with the elections in October on course to deliver another term for the ruling coalition.
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