Europe’s debt woes and Middle East turmoil depress global creditworthinessThe debt crisis in Europe and political turmoil in the Middle East have triggered a broad decline in sovereign creditworthiness, according to Institutional Investor’s exclusive semiannual Country Credit Survey.
The average credit rating of the 178 countries covered in the survey declines by 0.6 point from the March average, to 45.9 on a scale of zero to 100. Countries in Western Europe and the Middle East/North Africa post sizable declines, the U.S. falls more modestly decline as does much of trade-dependent Asia, while the Latin America/Caribbean and Eastern Europe/Central Asia regions see their scores increase.
The average creditworthiness rating of Western European countries falls to 77.9 in the latest survey from 80.9 in the previous survey in March. Just five years ago, the region’s average rating stood at a lofty 90.3. (Respondents rate countries on a scale of 0 to 100.)
Greece leads the decline, plunging by 19.7 points, to 27.2. The country obtained a fresh bailout from the EU and International Monetary Fund in July, but the deal included a debt swap that for the first time will force private creditors to write down their holdings of Greek debt. The two other EU countries under EU-IMF rescue programs also post sharp declines, with Ireland dropping 12 points, to 49.0, and Portugal falling 15.5 points, to 49.9. When asked the likelihood of various countries’ defaulting on their debt within the next five years, 86.7 percent of survey respondents say Greece is “likely” or “highly likely” to do so. Portugal and Ireland are next, with 46.7 and 38.3 percent of respondents, respectively, giving them a vote of no confidence.
The U.S. declines 0.9 point, to 90.5, and falls three places to 12th in the survey, just behind Australia. The survey was based on responses submitted before Standard & Poor’s took away Uncle Sam’s triple-A rating.
The Arab Spring may ultimately bring political and economic advances in the Middle East, but the current uncertainty leaves many raters worried. Libya suffers the biggest drop in the ratings, plummeting 23.1 points, to 31.5. Elsewhere, Tunisia is off by 8.1 points, Bahrain falls 7.8 points, Egypt is down 5.4 points and Yemen drops 4.9 points.
How We Compiled the RatingsInstitutional Investor’s Country Credit ratings are based on information provided by senior economists and sovereign-risk analysts at leading global banks and money management and securities firms. The respondents have graded each country on a scale of zero to 100, with 100 representing the least likelihood of default. We weighted participants’ responses according to their institutions’ global exposure. Names of respondents are kept strictly confidential.
The September 2011 Country Credit survey was conducted by II staff under the guidance of Senior Editor Jane B. Kenney.