Energy-producing nations' ratings have suffered in the first quarter, but a cluster of countries have seen improvements, a firm tracking geopolitical and economic risk says.

Three times as many countries have suffered debt rating downgrades as experienced gains to their debt scores in 2016, as energy-producers were hit by price falls. Countries such as Brazil are unlikely to see progress for at least another year, said IHS Global Insight, an insight and analytics firm. 

Some 49 countries' debt ratings were cut in the first three months of 2016, while 16 were upgraded, the organisation said in a quarterly report, issued today.

Energy exporting countries such as Angola, Azerbaijan, Bahrain, Congo, Gabon, Kazakhstan, Nigeria, Saudi Arabia and Oman were downgraded in the first quarter.

“The first quarter of 2016 marked a clear relapse in the balance of global rating downgrades and upgrades, with downgrades three times the number of upgrades,” said Jan Randolph, director of sovereign risk at HIS Global Insight. 

One of the countries to have suffered a sharp fall from grace in recent years is Brazil, hit by political scandal, economic slowdown and deterioration in public finances. 

“Brazil isn’t likely to see the light at the end of the economic tunnel until 2017 at the earliest,” Randolph said. “Prolonged recession, painful fiscal and monetary adjustments and deteriorating debt ratios, all compounded by a scandal-related fractious presidential impeachment process, have all served to undermine Brazil's investment grade status."

Oil slide
“Both Azerbaijan and Nigeria have been hard hit by the oil price decline shock, but the two countries could not have responded more differently,” Randolph said. “Azerbaijan has taken a good fiscal approach, is reassessing spending, and is really trying to restore its position. Nigeria has gone on the defensive. It has yet to remove all oil-related subsidies and has heavily intervened in the currency market to defend the naira, wasting foreign exchange reserves in the process."

Southeast Europe a bright spot
Several countries in Southeastern Europe have seen rating upgrades, including Albania, Serbia, Bosnia-Herzegovina and Romania. These upgrades have come despite the proximity of ongoing travails in Greece and the heightened refugee challenges.

Both Albania and Serbia, in particular, have new governments with re-energised reform zeal, clearly marking out a policy reform pathway towards closer engagement with the European Union and, eventually, hoped-for membership of the bloc. In the first quarter, IHS upgraded both the medium-term and the short-term ratings for Albania by one notch. The changes were driven by strong foreign direct investment inflows in 2015 (especially the Trans-Adriatic pipeline and hydro-electric power projects), the repayment of government arrears, and continued success in meeting IMF targets since 2014.

Serbia, too, has been reforming its economy and administration to comply with the EU's long list of membership requirements. With an IMF stand-by programme in place, the policy anchors have served to help narrow external and internal deficits, restrain debt build-up and offer decent GDP growth.

Ireland and Iceland transformed
“Ireland's remarkable turnaround since exiting the bailout in December 2013 has seen further rating upgrades lift it higher up the investment grades as strong underlying GDP growth and a tight fiscal position have meant the public debt metrics have fallen significantly,” Randolph said.

In Iceland, capital controls are being lifted as economic recovery has progressed and financial stability is returning to Iceland's much-downsized banking sector and debt and currency markets.

“The positive outlook on the IHS upgraded Icelandic rating suggests that our next rating action is likely to be upwards,” Randolph said. “Further progress on capital control liberalisation, and a continuation of the economic recovery and improvement in the public finances, are likely to result in a new upgrade over the coming quarters,” he added.