Business environment risk: Ten countries upgraded, seven downgraded

In the framework of its regular review of business environment risk classifications, Credendo has upgraded 10 countries and downgraded 7 others. The latest rating changes reflect diverging developments. On the one side, many exporting countries continue to benefit from high commodity prices whereas on the other side, a lot of countries suffer from the negative fallout of the war in Ukraine on global demand and on their domestic activity.

Business environment risk

• North Macedonia: downgrade from category D/G to E/G

North Macedonia is gradually feeling the pain from adverse domestic and external economic developments and from heightened geopolitical tensions on the European continent. Indeed, through its impact on energy supplies, prices and the overall economic activity, the war in Ukraine has gradually slowed down North Macedonia’s GDP growth. After having rebounded by 4% in 2021 from a deep Covid-19-related recession, GDP is expected to grow by 2.7% this year. The grim economic outlook for 2023 amid a recession in the EU – its key trade partner, largely dominated by Germany – and potential energy shortages during the winter, is expected to keep GDP growth below 3%. However, this forecast might be revised down given the high uncertainty. Inflation was at an all-time high near 20% last month and will without a doubt weigh on household consumption and industrial activity. Therefore, to rein in inflation pressures, the authorities are expected to further tighten their monetary policy in the coming months. In 2022, interest rates were raised several times from 1.25% in January to 4.25% in November. These measures allowed to contain depreciating pressures on the Macedonian denar (which is de facto pegged to the euro) amid a much widened current account deficit. In this deteriorating economic climate that is unlikely to improve in the near term, the business environment risk rating has been downgraded from D/G to E/G.

• Sierra Leone: downgrade from category F/G to G/G

Sierra Leone was recently downgraded to the highest business environment risk classification G. The country is deeply affected by soaring global food and fuel prices, as it is highly import-dependent. Inflation reached almost 30% by the end of the year and is among the highest in the region. The local currency lost almost half of its value against the US dollar over the past year, despite a re-denomination effort. To tackle rising consumer prices, the central bank raised the lending rate to 19% in June. During the summer, large violent demonstrations – met by a severe government crackdown – arose across the country in protest of the rising cost of living. As a result, Sierra Leone’s growth projections were revised down despite the huge mining potential.