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COVID-19's Political Risk Impact: World Risk Review Findings


Significant change has occurred in many countries' economic, political, and security risks in April 2020, indicates Marsh JLT Specialty's country risk ratings platform, World Risk Review (WRR). This likely reflects COVID-19’s global impact so far on countries, businesses, and people.

Countries' economic and currency inconvertibility and transfer risks saw the most widespread increases, while contractual agreement repudiation risks also increased in many.

Sovereign credit risks are unchanged in most countries, although more change is likely. Meanwhile, the short-term risk of strikes, riots, and civil commotion decreased in many countries.

WRR scores 197 countries on a 0.1-10 scale across nine risks, with 0.1 representing the lowest risk score and 10 representing the highest.

More than a quarter (26.7%) of WRR ratings increased in April 2020, compared with 10.2% in the same month in 2019. A selection of WRR ratings are summarized below.

Many countries' economic risks increased in April 2020
  Country Economic Risk Currency Inconvertibility and Transfer Risk Sovereign Credit Risk Contractual Agreement Repudiation Strikes, Riots, and Civil Commotion
Increase 129 138 16 45 40
Decrease 15 3 4 7 56
No change 53 56 177 145 101
Source: Marsh JLT Specialty

Country Economic Risk

In April 2020, 129 countries experienced a month-over-month increase in their WRR country economic risk rating; 42 countries saw the risk increase by 0.3 or more.

The US saw the largest single change, its score increasing by 0.9, from 2.9 to 3.8. In March 21-27, the US posted seasonally adjusted unemployment claims of 6.6 million, ten times the previous single-week record posted in 1982. The unemployment rate could rise above 10% and economic activity is likely to drop significantly in the short term. The US economy is expected to contract by 2.8% in 2020.

Currency Inconvertibility and Transfer Risks 

Currency inconvertibility and transfer risk increased for 138 countries. Financial markets are becoming more risk averse, and countries with structural economic weaknesses — such as those posting twin fiscal and current account deficits — are particularly exposed to capital movements and experiencing currency sell-offs. Emerging market currencies in Mexico, Brazil, Russia, and India are experiencing pressure. Central banks are likely to continue drawing down on foreign reserves in the coming weeks to stem declines. The recent collapse in oil prices, a result of reduced demand and the Saudi Arabia/Russia dispute, is particularly elevating currency risks among oil exporters, as access to hard currency is reduced. An OPEC+ agreement to cut oil production by 9.7 million barrels per day will come into effect on May 1, 2020, immediately de-escalating the price dispute. However, the move is unlikely to prevent price weaknesses in the coming months.

Sovereign Credit Risks

Sovereign credit risks saw the least change, with only 16 countries experiencing an increase. But more changes are likely. Governments across the globe are launching record stimulus packages, which will contribute to sharply widening budget deficits and significant increases in public debt levels in the coming quarters.

Contractual Agreement Repudiation Risks

The investment environment is deteriorating, with contractual agreement repudiation risk scores increasing for 45 countries in April 2020. Spain and Italy saw the largest increases (1.2 and 1, respectively).

The risk of expropriation and contract alterations is rising as many governments introduce emergency legislation. It is unclear how long governments will maintain an expanded role in economic activities. Scores may increase further in the medium to long term as governments look to expand revenues, particularly from natural resources, in the face of economic pressures and rising debt. The risk is likely to be particularly elevated in emerging markets dependent on commodity revenues.

Strikes, Riots, and Civil Commotion Risks

Strikes, riots, and civil commotion (SRCC) risks have seen a short-term improvement, as lockdowns limit the mass mobilization of people and reduce the threat of social unrest. Fifty-six countries saw their SRCC rating improve in April 2020. The largest improvement was in Romania (SRCC risk decreased by 0.7), which has been under a state of emergency since March 16, implementing strict control of movement.

Protest risks may increase in the longer term, however, as governments' handling of the pandemic faces increased scrutiny and austerity measures are introduced to tackle rising debt burdens. 

COVID-19 is reshaping the risk environment. Now, more than ever, companies can benefit from a nuanced understanding of their political risk exposures. WRR allows firms with international operations to monitor rapidly evolving political risk trends, through quantitative and qualitative insights.   

About World Risk Review (WRR)

WRR is Marsh JLT Specialty’s proprietary country risk ratings platform, which provides risk ratings across nine insurable perils for 197 countries.

Country risk ratings are generated by a proprietary algorithm-based modelling system incorporating 277 separate indicators.

Ratings are updated monthly and provide a forecast of the risk environment in the short to medium term. For each peril, countries are scored on a 0.1-10 scale, with 0.1 representing the lowest risk score and 10 representing the highest.

The nine peril indices provided by WRR mirror the insurance market’s approach to political and security risk.