Analysts at insurance broker and risk advisor Marsh predict that pandemic-induced economic stress will continue to worsen global political risk throughout this year, along with amplifying the threats facing already-fragile economies.
Marsh Specialty published the Political Risk Map 2021, which shows larger increases than ever before in country economic risk across all regions globally.
This is being driven by increases in deficit spending over the last 12 months, which is adding to sovereign and commercial credit risks in the less developed economies of the world.
According to the report, the 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 Political Risk Map mirrors the observations which were found in the World Economic Forum’s Global Risks Report 2021, which reported that the COVID-19 pandemic is increasing disparities between emerging economies and industrialised nations.
It is also driving social fragmentation which, in the next 5-10 years, will weaken geopolitical stability.
According to this year’s report, social inequality is a pervasive risk across multiple regions – particularly in the Americas and Europe. In the future, inequality is likely to influence elections, contribute to political and economic nationalism, and could create conditions that spark open conflict.
As a result of COVID-19, many countries have established or amended state-backed trade credit schemes to provide economic stability.
While these programmes are currently supporting domestic trade and exports, critics argue they are keeping companies with heavy debt burdens and low cash reserves alive.
Stephen Kay, Global Head of Political Risks, Marsh Specialty, commented: “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.
“Despite many areas of heightened risk, opportunities remain for corporate entities, financiers, and investors. 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.”