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Jun 2021

Pandemic fuels heightened political risk in 2021

Source: Middle East Insurance Review | May 2021

Pandemic-induced economic stress will continue to exacerbate political risk throughout 2021, according to Marsh Specialty’s latest political risk map.
 
The political risk map 2021 shows large increases in in-country economic risk than ever before across all global regions. Based on data from Marsh’s World Risk Review platform it rates 197 countries and territories across nine indicators relating to security, trading and investments.
 
It reveals that COVID-19 is fuelling social inequality and political unrest, amplifying threats facing already-fragile economies.
 
The risk map’s accompanying report said that COVID-19 has widened the divide between rich and poor, setting some countries back decades in their efforts to reduce poverty. Food security, water access and energy costs remain acute pressures that can lead to growing nationalism and civil unrest.
 
Societal inequality, meanwhile, will factor in electoral platforms, especially in middle- and low-income countries, according to Marsh.
 
Many governments have implemented fiscal and monetary policies to fuel a recovery from the pandemic but the political risk map 2021 shows larger increases than ever before in country economic risk across all regions.
 
This is driven by increases in deficit spending, adding to sovereign and commercial credit risks in less-developed economies.
 
Marsh’s analysis projecting a growing disparity between emerging economies and industrialised nations said, “Strains on public financing in emerging markets will result from increases in sovereign indebtedness and may create unfavourable conditions for domestic and foreign-owned businesses.”
 
The report said that its findings mirror those of the WEF Global Risks Report 2021. It also found that the COVID-19 pandemic is increasing disparities between emerging economies and industrialised nations.
 
According to Marsh’s political risk map, social inequality is a ‘pervasive risk’ across multiple regions – particularly in Europe and the Americas.
 
It also notes that many countries created or changed state-backed trade credit schemes to provide economic stability during the pandemic. Marsh fears this may have propped up ‘zombie’ companies and a raft of bankruptcies could occur once these schemes end.
 
“While these programmes are currently supporting domestic trade and exports, critics argue they are keeping zombie companies – those with heavy debt burdens and low cash reserves – alive. The political risk map points to the risk of mass bankruptcies among zombie companies once these government-backed schemes expire,” it said.
 
Marsh Specialty global head of political risks Stephen Kay said, “As the world recovers from the effects of COVID-19, we expect the issues of social inequality, country economic risk and strategic resource nationalism to take centre stage in influencing political decision-making.”
Mr Kay said, “Insurance-backed political risk and credit solutions can help to secure trade and investment capital, unlock liquidity and enable growth that will fuel and sustain the recovery from COVID-19.” M 
 
 
Commercial Risk Online is a sister publication of Middle East Insurance Review
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