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 27 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, Vietnam, South Korea, and Indonesia 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. The analysis, by not capturing geopolitical risks, perhaps overstates Saudi Arabia and Taiwan's purported resilience to shocks.
Latest update: June 2024
Source: BIS, CEIC, IIF, IMF, DBS Research. Note: Indicators are in % of GDP, unless otherwise stated.
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 Argentina, Brazil, Hungary, Pakistan, Egypt, South Africa, and Turkiye at the bottom of our rankings. Almost 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. Most of these currencies have slumped significantly in 2023 and 2024 year-to-date.
- EM Asia looks fairly healthy: Taiwan, Vietnam, South Korea, and Indonesia have some of the best scores in the region. 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.
- China, India, and Malaysia fall near the middle of the EM vulnerability cohort.
- Russia continues to rank favourably among EMs, given its low government and external debt, as well as decent savings-investment surplus and reserves cover for external funding needs.
- At the better end of the spectrum are other energy exporters, such as Saudi Arabia, Qatar, and UAE. Their macroeconomic positions are strong, with healthy fiscal position, savings-investment surpluses, external buffers, alongside low currency misalignments, helped by the hydrocarbon windfall in recent years.
- Saudi Arabia continues to sit near the top of our rankings, 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, IIF, IMF, DBS Research
Findings
- Brazil, Chile, Colombia, Pakistan, Hungary, Turkiye, and Egypt have had some of the worst vulnerability scores.
- Egypt backslided to the very bottom of our rankings in 2023, due to low reserves to cover foreign obligations, and weak public finances. Amid a shortage of foreign exchange, the Egyptian Pound was devalued by 38% vs the USD in March 2024, effectively unifying the official and parallel exchange rates. The Central bank also hiked the discount rate by 600bps to 27.75% on the same day to limit the impact on already high inflation.
- Argentina’s ranking regressed in 2023, after modest improvements in 2022 and 2021. Challenges were seen in very weak public finances and low reserves to cover foreign obligations, while the savings-investment deficit widened. The currency was devalued by over 50% in December 2023, alongside fiscal measures such as subsidy cuts, to stabilise the economy under the new government.
- South Africa’s vulnerability ranking worsened significantly to 26 in 2023 from mid-tier in the past two years, due to elevated fiscal deficit and government debt, low reserves cover, wider savings-investment deficits, and bigger currency misalignment.
- In Asia, China has slipped from #13 in 2022 to #16 in 2023, amid weaker fundamentals seen from higher debt both at the private and public sector level, as well as smaller savings-investment surplus and reserves cover.
- India and Malaysia have not moved much.
- Within ASEAN, Vietnam has climbed due to broad-based improvements, while Philippines and Thailand have slipped, due to weaker public finances and saving-investment balances.
- Russia and UAE, primarily owing to an improvement in their saving-investment balances and reduced currency misalignment, have seen their rankings improve substantially in recent years. Russia also has low government and external debt metrics, and healthy reserves cover of foreign obligations.
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.
