Economic Challenges To Have Major Political Repercussions

BMI View: While we expect the Caribbean region to remain broadly stable in the coming years, slow growth and substantial debt burdens will lead to difficult policy trade-offs that could elevate political risk. Several of the key political themes that we highlight - increasing international constraints, growing Chinese influence in the region, mounting security challenges, and the preclusion of major independence drives among dependent territories - stem from the economic challenges facing the region.

We have recently been highlighting that the slowdown in growth in emerging markets will make economic and political environment s increasingly ch allenging over the coming years for both policymakers and foreign investors , result ing in difficult policy trade-offs that could lead to increased bouts of political risk ( see 'EM Turbulence To Continue As Policymaking Becomes Increasingly Difficult,' June 21) . We believe that the Caribbean region will feel these pressures acutely over the coming years, given that a sharp decline in global growth and turmoil i n financial markets has had negative economic consequences for the Caribbean region ( see 'Additional Credit Events Only A Question Of Time,' June 4) . Indeed, while the countries in the Caribbean receive an average score of 68.7 in BMI 's proprietary Short-Term Political Risk Ratings, above the average for regions such as Latin Ameri ca, Africa, and the Middle East , which contain well known political 'hotspots , ' the Caribbean scores worse than North America, Asi a, and Europe, illustrating that political risk remains elevated in relation to most developed market economies.

Below we highlight several key political themes for the Caribbean in the coming years, most of which stem from the economic challenges facing the region. W e believe that many Caribbean nations will be increasingly constrained in their pol icy choices given a reliance on multilateral organisations for financial support. Moreover, steady capital and financial account inflows from European countries will preclude major drives for independence from non-sovereign territories . Chinese influence will grow due to rising investment and trade ties with the region's oil and gas exporters, while t ight budgetary conditions will also see Caribbean nations struggle to contain rising security concerns, elevating political risk. Finally, the threat of natural disaster will continue to loom large .

Middle Of The Pack
BMI Short-Term Political Risk Ratings, Out Of 100

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This article is tagged to:
Sector: Country Risk
Geography: Caribbean

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