Mar
26
2009
Countries at risk of a financial crisis
By admin
The following types of countries are most likely to be at risk (this is a selection of indicators):
- Countries with significant exports to crisis affected countries such as the USA and EU countries (either directly or indirectly). Mexico is a good example;
- Countries exporting products whose prices are affected or products with high income elasticities. Zambia would eventually be hit by lower copper prices, and the tourism sector in Caribbean and African countries will be hit;
- Countries dependent on remittances. With fewer bonuses, Indian workers in the city of London, for example, will have less to remit. There will be fewer migrants coming into the UK and other developed countries, where attitudes might harden and job opportunities become more scarce;
- Countries heavily dependent on FDI, portfolio and DFI finance to address their current account problems (e.g. South Africa cannot afford to reduce its interest rate, and it has already missed some important FDI deals);
- Countries with sophisticated stock markets and banking sectors with weakly regulated markets for securities;
- Countries with a high current account deficit with pressures on exchange rates and inflation rates. South Africa cannot afford to reduce interest rates as it needs to attract investment to address its current account deficit. India has seen a devaluation as well as high inflation. Import values in other countries have already weakened the current account;
- Countries with high government deficits. For example, India has a weak fiscal position which means that they cannot put schemes in place;
- Countries dependent on aid.