Business environment risk: mainly upgrades, only one downgrade
In the framework of its regular review of business environment risk, Credendo upgraded 22 countries and downgraded one country. Although half of these rating changes regards small islands, mainly in the Caribbean, this positive trend highlights a gradual country-specific economic improvement, notably for countries such as Ghana and Sri Lanka, where negotiations about public debt restructuring are (slowly) moving forward.
Business environment risk
Ghana: upgrade from G/G to F/G
The macroeconomic situation is slowly improving in Ghana, where GDP growth prospects are expected to show a rebound this year to 2.8% (from an estimated 2.3% in 2023). Progress is also visible in terms of inflation, which has gradually eased since mid-2023, from 43% to around 23% in early 2024, and enabled the Bank of Ghana to lower its interest rate to 29%. Another cut is expected later this year, along with potentially falling inflation pressures. As for the cedi, after its tumble prior to Ghana’s sovereign default in December 2022, it shows more resilience and reduced volatility. Still, it remains on a gradual downward trajectory, losing nearly 20% against the US dollar since mid-2023, on the back of Ghana’s fragile economic situation and widening current account deficit. Looking ahead, Ghana’s government is expected to keep complying with the macroeconomic stabilisation goals determined in the framework of its IMF programme. Even though ongoing public debt restructuring negotiations with external creditors have yet to be concluded, progress in the business environment risk justified an upgrade from the highest risk category G/G to F/G.
Sri Lanka: upgrade from G/G to F/G
Since the third quarter of 2023, Sri Lanka is gradually emerging from the economic crisis, as reflected by GDP growth turning positive. The recovery, visible in agriculture, manufacturing and services (including tourism), should continue in 2024. The IMF expects real GDP growth to be around 1.7% after two years of recession. Further favourable developments should also be pointed out, particularly the easing of food and energy shortages, the sharp decline in inflation (from +49% one year ago to +5.9% last month) and the rebound of the rupee from historically low levels against the US dollar (+9% between the end of November 2023 and the end of March 2024). Moreover, in February, the level of foreign exchange reserves was 25% higher compared to six months ago. Progress in government reforms, especially regarding poor public finances, has been recently welcomed by the IMF in the framework of the ongoing EFF financial programme started 12 months ago. This is expected to lead to a third disbursement of USD 330 million soon. Those encouraging news led to an upgrade of the business environment risk rating from the highest risk category G/G to F/G. Looking ahead, challenges remain elevated in a tense social climate (with higher poverty and unemployment) amid economic austerity. Moreover, Sri Lanka remains cut off from the financial markets, while Colombo has just started public debt restructuring negotiations with private creditors after having reached an in-principle deal with official creditors. In this context, the presidential elections scheduled in October will be of major importance for the country’s economic prospects. Whoever wins, and given the national trauma from the latest deep economic crisis, policy continuity under the IMF programme is very likely.
Poland: upgrade from E/G to D/G
After recording modest growth in 2023, Poland has observed a rebound in activity since the second half of last year, in spite of persisting high inflation and credit contraction. Private consumption mainly supports the recovery on the back of impressive real wage growth. EU funds blocked amid rule-of-law concerns have finally been unlocked in the framework of the Recovery and Resilience Facility. Support under the RePowerEU Plan and the EU Cohesion Fund, amounting together to about 4% of GDP and to be spent in two years and a half, should further boost investments and have a positive impact on corporate activity. Production data also indicate a recovery in the manufacturing and exporting sectors. Those positive developments justified the upgrade of the business environment risk rating to D/G.