Saturday, July 12, 2014

EKN upgrades Bangladesh and Nepal and downgrades Mongolia

After an analysis of countries in Asia and in southern and eastern Africa, EKN is adjusting the country risk classes of, Bangladesh Nepal and Mongolia.

Upgrading of Bangladesh to country risk category 5 (from 6)

Despite the polarised and often restless political situation in Bangladesh, the country’s economy has developed well in the past decade. Annual growth is expected to continue at approximately six to seven percent.

One important factor in the country’s growth is the textile and clothing industry, which accounts for 80 percent of export revenues.

“The focus on export of textiles and clothes has been successful, and generates many important jobs for the large population,” says Lovisa Bolander, country analyst at EKN.

Bangladesh now needs to broaden its economy and strengthen the country’s institutions. Such reforms are under way under the terms of the agreement between Bangladesh and the IMF.

The upgrading means that Bangladesh is now in a better EKN country risk category than the overall assessment in OECD. Where possible, EKN will be pricing the premium according to country risk category 5, but the premium will not be less than the agreed minimum premium in OECD country risk category 6.

The total value of EKN’s outstanding guarantees for exports to Bangladesh are nearly SEK 1.5 billion.

Upgrading of Nepal to country risk category 6 (from 7)

In February 2014 Sushil Koirala was appointed prime minister of Nepal, the sixth prime minister since the monarchy was abolished in the country in 2008. The hope is that Sushil Koirala will succeed with the task of shaping a new constitution for the country.

“It must be seen as a step in the right direction that the new prime minister has put the constitution work at the top of the government agenda,” says Lovisa Bolander, country analyst at EKN.

Many years of political instability in Nepal has left its mark on the economy. However, the country’s external debt is limited, largely due to the inflow of money from emigrant workers, which amounts to 25 percent of the country’s GDP.

EKN has no outstanding guarantees for exports to Nepal.

Downgrading of Mongolia to country risk category 5 (from 4)

Mongolia’s balance of payments and debt situation has weakened in the past two years.

“Falling prices for the country’s important commodities exports and the drop in foreign direct investments have weakened the balance of payments. To keep growth rates high the state is running large consolidated budget deficits and monetary policy has been very loose. The national debt has grown significantly in recent years and currency reserves have decreased, which makes the country increasingly vulnerable,” says Johan Fredriksson, country analyst at EKN.

In the longer term, the prospects for the Mongolian economy may improve through ongoing negotiations with major investors in the mining sector and by reforms to improve the investment climate.

The total value of EKN’s outstanding guarantees for investments in and exports to Mongolia amounts to over SEK 60 billion, and involves transport and machinery relating to the country’s mining industry.

About EKN’s country risk classification

EKN monitors developments in the countries of the world and assesses the risk of payment difficulties. The assessment is summarised in a country policy, where we allocate a risk category from 0 to 7. The lower the number the better the credit rating of the country. The assessment is made continually and in annual regional reviews, in collaboration with other OECD countries.

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