India’s position in the Global Political Risk Index (GPRI), which measures a country’s ability to absorb political shocks, edged up one point in the past year to 63 and its outlook remains neutral. The late November Mumbai attacks will push India to keep up the pressure on Pakistan to crack down on militant groups, according to Eurasia Group, which compiles the index.
Mint has partnered with Eurasia Group, a political and economic risk analysis firm, for GPRI, a composite measure of the state of a country’s government, security, society and economy. All indicators are scored on a scale of 0 to 100, and the higher the number, the greater the country’s ability to withstand external or internal political shocks.
The biggest gainers in 2008 were Algeria and Brazil, which saw their scores increase by five points and four points, respectively, while the biggest losers were Nigeria and China, down six points and four points. China, which had been the biggest gainer for 2007, and Nigeria are both battling significant political challenges amid an economic downturn.
“Political risks are on the rise. The ongoing global economic crisis is precipitating a range of policy responses from leaders,” Eurasia Group commented in a report on its findings. “Investors should closely watch country-specific responses to gauge whether these policy efforts are properly targeted.”
In India’s immediate neighbourhood, Pakistan’s score remained unchanged at 43, and its outlook neutral. The country faces the risk of domestic political tension centred on the supreme court, according to the report.
Breaking down the index into its components, government-specific scores for the 24 economies covered were relatively stable in 2008, but with significant variation at the country level. Government stability suffered the biggest declines in Thailand (-8), Nigeria (-7), Argentina (-6), Iran (-6) and Hungary (-5). The Philippines (+6), Algeria (+6) and Brazil (+5) had the most gains.
The global financial crisis contributed to declining economic scores in 2008, although concerns over inflation have passed. This year, the focus is “on the economic slowdown and the risk of deflation—although this is of greater concern in the developed economies that have experienced significant asset inflation in recent years,” Eurasia Group said.
Those countries that relied on exports to power growth may suffer as consumer demand declines. “China in particular will be at risk, due to its substantial excess productive capacity stemming from extraordinarily high rates of investment in recent years,” according to the report.
Safer investments in 2009 will include emerging markets that are better placed to weather the economic crisis and those with stable governments that will implement “fiscal policies to stabilize their economies”.
Winners from the oil price decline include India, which relies on imports for much of its needs. India’s national oil companies “now face less risk of getting priced out of competitive international upstream acquisitions”, according to an analysis by Eurasia Group.
Graphics by Paras Jain / Mint