Short-term political risk: Three countries upgraded, two downgraded

In the framework of its regular review of short-term (ST) political risk, Credendo has upgraded three countries and downgraded two countries.

Ghana: UPgrade from 6/7 to 5/7

In a difficult transitional post-debt default phase, the Ghanese economy has shown encouraging progress under its three-year IMF ECF programme (approved in May 2023). The evolution of foreign exchange reserves has been favourable this year, reflected by a clear upward trend (+67% in August 2024 compared with one year ago). As a result, the import cover increased to a more acceptable level of 2.3 months last August. This improvement should persist next year thanks to the recent IMF disbursements of about USD 360 million and the expected decline in (an affordable) current account deficit. Moreover, the economic outlook looks more favourable and the public debt restructuring process is expected to be concluded by year end. The recently reversed depreciating trajectory of the cedi indicates more optimism among investors too, as they seem convinced that the smooth power change after the latest general elections of 7 December bodes well for the more upbeat prospects and reform commitment under the IMF programme. This said, a still high cost of living and reliance on volatile commodity prices and production amid an intensifying climate change remain downside risks. 

Pakistan: upgrade from 6/7 to 5/7

Pakistan’s liquidity has strengthened this year after a critical period during which foreign exchange reserves fell to their lowest level in February 2023, with under USD 3 billion and less than one month of imports. After some stabilisation between mid-2023 and March 2024, foreign exchange reserves have more than doubled since then, reaching an import cover of two months last September. This more robust level is explained by secured heightened external financial support. On the one hand from the IMF, with which a new 37-month programme (the 24th since 1950) of USD 7 billion was approved last September, and on the other hand thanks to extra billions received from its allies (China, UAE, Saudi Arabia). Therefore, the liquidity situation is not critical anymore with foreign exchange reserves nearing the upcoming debt service. This more positive picture also results from an improving economic situation with an accelerating GDP growth, decreasing inflation well below 10% and cuts in interest rates (from 17.5% to 15% in early November). This said, Pakistan’s still costly market access and high public debt (equivalent to 550% of government revenues of which more than half goes to interest payments) mean that public finances remain in a precarious state. Besides, the 2025 outlook will be challenged by the indirect impact of a potential global trade shock and a deteriorating domestic security situation.