DBS Country Risk Heatmap
Assessing EM macroeconomic risks
Welcome to DBS Country Risk Heatmaps. We showcase a cross section and a time series heatmap of a wide range of macro health indicators of 25 major emerging market economies. You can toggle between the Cross section and Time series tabs below to access the two heatmaps. The dynamic visualisations provide overall rankings to identify relative risks going forward using latest available data. In the time series heatmap, we provide the evolution of overall rankings over the past six years.
Many EMs have seen their cover for foreign obligations, saving-investment balance, and fiscal position weaken in recent years. Asia looks relatively healthy vs EM peers, despite China's structural challenges. Taiwan, South Korea, Indonesia, and Philippines have some of the best scores regionally.
Latin American economies, alongside Pakistan, Hungary, Turkiye, and Egypt, have constantly had the worst scores. Energy exporters, Saudi Arabia, Qatar, UAE, and Russia score well, given high oil prices. The analysis, by not capturing geopolitical risks, perhaps overstates Saudi Arabia and Taiwan's purported resilience to shocks.
Latest update: October 2023
Source: BIS, CEIC, IMF, DBS Research. Note: Indicators are in % of GDP, unless otherwise stated.
DBS latest key findings
- EM vulnerability indicators have worsened in recent years, as the cover for foreign obligations, saving-investment balance, and fiscal position have slipped in many countries.
- We find Brazil, Chile, Colombia, Hungary, Pakistan, Egypt, and Turkiye at the bottom of our rankings. All feature weak reserves and cover for foreign obligations, high fiscal deficit and debt, unfavourable saving investment gaps, and some degree of currency misalignment. The weak fundamentals pose FX risks. For e.g., currencies of Turkiye, Pakistan, and Egypt have slumped by 20%-30% so far in 2023.
- EM Asia looks fairly healthy: Taiwan, South Korea, Indonesia, and Philippines have some of the best scores in the region.
- China, India, Malaysia, and Thailand fall in the middle of the EM vulnerability cohort.
- Russia also ranks favourably among EMs, given its low government and external debt, as well as high savings-investment surplus and reserves cover for external funding needs.
- At the better end of the spectrum are energy exporters, such as Saudi Arabia, Qatar, and UAE, that benefitted from higher oil prices in 2022, contributing to their fiscal surpluses. Even though oil prices are off their peaks in 2023, this group should hold up, as they come from strong macroeconomic positions.
- Saudi Arabia ranks #1, thanks to high levels of reserves, cover for foreign obligations, low public debt, stable exchange rate, and a favourable savings-investment gap, despite high private sector debt.
Source: BIS, CEIC, IMF, DBS Research
DBS latest key findings
- Brazil, Chile, Colombia, Pakistan, Hungary, Turkiye, and Egypt have had some of the worst vulnerability scores.
- Hungary fell to the very bottom of our rankings in 2022, due to poor public finances, high external debt, wide savings-investment imbalance, and weak reserves to cover foreign obligations. The forint weakened significantly in 2022 by 9.5% in nominal effective exchange rate terms.
- Argentina's ranking improved in 2022 and 2021, but the uptick was insufficient to avoid a massive currency devaluation in 2023. Challenges especially from very weak public finances, resulting in monetary financing and rampant inflation, alongside still entrenched low reserves, mean that bigger positive adjustments will be required.
- From a comfortable mid-tier ranking in 2016, Chile has slipped sharply, driven by a dramatic worsening of its fiscal and debt metrics.
- South Africa has seen its vulnerability ranking improve markedly during the same period, but it has largely been driven by the relative slippage of its peers in recent years than any major improvement of its own.
- In Asia, Taiwan has consistently led EM rankings, due to high savings/investment surpluses contributing to robust reserves, alongside low government, and external debt, despite high private debt.
- India and Malaysia have not moved much.
- China has slipped from #9 in 2016 to #12 in 2022, driven largely by massive debt build-up both at the private and public sector level.
- Russia, UAE, and Poland, primarily owing to an improvement in their saving-investment balances and largely fair value REERs (for the latter two), have seen their rankings improve substantially in recent years. Russia has also seen a sharp rise in reserves cover of foreign obligations, along with low government and external debt metrics.
Notes
- The eight indicators in the heatmap are foreign exchange reserves, fiscal balance, private and public sector debt, external (hard currency) debt, savings-investment balance, gross external funding requirement, and real effective exchange rate (REER).
- The vulnerabilities are assessed in simply ordering, except for REER:
If country A's debt if higher than country B's debt, A scores poorer than B. - For REER, the absolute deviation of REER from long-term trend is used to capture risks from over/undervaluation.
- Annual data provide the depth and breadth to monitor macro vulnerabilities that build up steadily over time.
