Central and Latin America: Country Risk Ratings

Argentina (ARG)

The overall risk for Argentina is medium-high. In recent months, Javier Milei’s administration has managed to lower inflation to around 3% monthly by implementing significant fiscal consolidation of approximately 4% of GDP. So far, his government has become stronger; although he does not hold a majority in Congress, his alliance with other centre-right forces has enabled him to achieve important victories in Congress regarding economic reforms. Although some protests have occurred, the opposition remains fragmented, and Milei’s popularity is around 50% according to recent  polls, despite the economy experiencing three consecutive quarters of contraction.

The risk of political violence is medium, as the country is politically divided. Although there have been some protests organized by the opposition, most have been peaceful, and no signs of significant violence have been observed. Legal and regulatory risk is medium-high, as Milei’s administration is consistently changing the rules in Argentina while attempting to liberalize the economy. For similar reasons, political and regulatory risk stands at medium-high. Supply chain disruption risk is medium, as there is little indication that the Argentine economy will face interruptions in its supply lines, despite the current economic uncertainty.

Exchange transfer risk is medium-high due to the low level of foreign reserves, currently at USD 40 billion. However, government officials assert that the reserves for upcoming debt payments are secured, and the country has been able to increase its USD reserves in recent months. The risk of doing business is high due to the economic situation in the country, characterized by limited access to foreign reserves and a severe recession in recent quarters. The government's inability to provide stimulus is medium-high due to the country’s severe fiscal situation and the government's commitment to implementing strong fiscal consolidation, which is likely to continue during Javier Milei’s term. Finally, banking sector vulnerability is medium-low, as most Argentine banks have adequate liquidity levels and no major crisis is in sight.

Bolivia (BOL)

Bolivia’s overall risk remains high. Luis Acre remains President ahead of 2025’s presidential and legislative elections. President Acre’s party Movimiento al Socialismo has been extremely divided between those who back him and those who back former President Evo Morales. In November, a constitutional court in Bolivia barred Evo Morales from ever running for office again, with Presidents now limited to serving just two terms. This came shortly after two major events in recent months have highlighted the struggle for power between the two and the subsequent impacts it’s had on the country. In late October, the former President claimed that the government attempted to kill him after Morales’s car came under gunfire. Meanwhile, Unions have protested and blocked highways which reportedly caused over USD 1.7 billion worth of economic damage in just 17 days and many people and police officers were injured in acts that were supposedly led by Morales’s supporters. Political tensions were further escalated in June as there was an attempted coup d’état in Bolivia. General Juan José Zúñiga led troops to the President’s palace. Gen Zúñiga was arrested after his entrance to the Palace was blocked by armed soldiers and vehicles. This event was an isolated incident and General Zúñiga initially told reporters that the attack was at the President’s request, just before his arrest. Political interference and legal & regulatory are both very high. In terms of the economy, real GDP is expected to grow 1.6% for 2024 and 2.2% for 2025. Bolivia’s economy is a big producer and exporter of natural gas and the rise in prices of their exports has allowed for a strong economic recovery after the pandemic. In July, President Acre announced the discovery of a 1.7 trillion cubic feet natural gas field, Bolivia’s biggest natural gas find since 2005. However according to the IMF, Bolivia’s current deficit will widen in the coming years as export demand falls and big trading partners such as Argentina and Brazil look for alternate supplies for gas. With insufficient FDI to cover the current account deficits, Bolivia have had to use up foreign exchange reserves which are now at historically low. This past year has been a difficult one for Bolivia in terms of inflation. The IMF anticipate that average prices have risen by 6% in 2024, the highest level for over a decade, with inflation forecast to slow to 4% in 2025. In addition, increasing government debt forecast to reach 97.9% of GDP in 2025 and hit 100% by 2026 due to falling gas revenues and high fuel and food subsidies, makes sovereign non-payment risk and the inability of the government to provide fiscal stimulus both high. Most debt is denominated in foreign currencies, highlighting the damage a depreciating Boliviano would have on debt. Furthermore, climate change is making Bolivia increasingly vulnerable to extreme weather patterns. Bolivia declared a national emergency as forest fires hit the country in September. Supply chain disruption is medium high and Bolivia’s economy’s reliance on natural gases sector makes them particularly vulnerable to price volatility in the sector. The risk of doing business is thus rated as high.

Brazil (BRA)

Overall risk for Brazil is medium. In the political realm, one of the most relevant news items was the result of the municipal election that occurred in October. The centre-right was able to gather around 70% of the municipal posts of mayor, while the centre-left gathered only 30%. Leftist President Lula from the PT continues to maintain a 40% approval rating, which indicates that the next presidential election in 2026 will be tight, regardless of who Lula faces. It is still unclear who will represent the centre-right against Lula. Former President Jair Bolsonaro from the PL is currently ineligible due to his speeches against election transparency among foreign ambassadors. Although some judicial efforts are being made to reverse this, we see little chance they will succeed. Some amnesty bills are being considered in Congress, but due to the new police operation involving an explicit coup attempt by Bolsonaro sympathizers within the military, these proposals tend not to prosper.

Political violence risk is at medium-high. Brazil holds one of the highest homicide rates in the world, and although it hasn’t translated into political homicides, it is a risk that exists. In November, a Bolsonaro supporter tried to throw a bomb at the Supreme Court building but ended up exploding himself in the outskirts of the building, revealing that extremist forces are active at the moment. Legal and regulatory risks are at medium-high, reflecting sudden changes that could occur in the tax system as the government seeks new revenue sources. Political interference risk is at medium-high, as both the executive and the legislative branches could interfere in Brazilian regulation, causing uncertainty in the markets.

Sovereign non-payment risk is at medium-high due to the high level of debt held by the Brazilian government, which we forecast will reach around 85% of GDP in the coming years—an elevated level compared to its EM peers. However, it is important to state that the Brazilian government has been able to roll over this debt comfortably since 95% is in local currency. Exchange transfer risk is at medium, as despite the deficit on the current account, most obligations in foreign currency are sufficiently covered by the influx of foreign investments, and the country holds a solid USD 350 billion in foreign reserves. The risk of doing business is rated high due to the high level of bureaucracy companies face in Brazil. Finally, the government’s inability to provide stimulus is at medium-high due to the level of debt and the limited space to incur high deficits to stimulate the economy.

Cuba (CUB)

Cuba’s overall risk remains high. Miguel Diaz-Canel remains President as he has done since 2018 in the one-party state, having won the 2023 elections. Political interference is down to high alongside legal & regulatory risk. Relations remains tense with the US with sanctions in place against Cuba persisting as they have done since 1962, despite Joe Biden’s presidency relaxing some like the lift on the remittances cap. Despite this, relations with Russia and China remain strong. China are still Cuba’s main FDI recipient and Cuba are still aiding Russia in their war effort in Ukraine. In the summer, a Russia naval flotilla visited Havana signalling their strategic partnership. Cuba will feel the need to remain strong partners with Russia and China as they combat what many feel is their biggest crisis since the end of the Soviet Union in 1991. Hurricanes Oscar and Rafael have hit Cuba and as a result they are suffering from power shortages and blackouts as well as a shortage of food, medicines and fuel. The national grid cut four times in five days in October. As a result, people have been killed and there have been some anti-government protests in response. The economy is therefore slowing as it deals with these issues and a major slowdown in the tourism sector since the pandemic. In November, Economy Minister, Joaquin Alonso said Cuba were unlikely to see any growth in 2024. Many Cubans have also emigrated to the US as discontentment over the economic and social conditions sparked unprecedented demonstrations in Santiago and surrounding provinces this year. It’s believed over 500,000 Cubans have fled to the US since 2022. As a result of shortage, Cuba is suffering a heavy bout of inflation estimated to be around 30% last year. As a result, supply chain disruption is high and the risk of doing business is very high. The government has made intervention such as price caps on essentials and cut budgets significantly to halt the ever increasing budget deficit as well as reforms on private companies to boost income. The Cuban peso is pegged to the USD at 1 USD to 24 CUP and thus becoming more overvalued. Exchange transfer risk is high and banking sector vulnerability medium.

Dominican Republic (DOM)

Dominican Republic’s overall risk remains medium. This year saw Luis Abinader re-elected as president taking 58% of votes in the general election. He promises that his administration will continue work to grow the economy and draw more people in the country out of poverty as well as implement public reforms to allow more Dominicans to have better access to health care, education and public services. Political violence and interference are both medium and legal & regulatory risk is medium high. Despite a relatively stable domestic political scene, the Dominican Republic continue to have tough relations with neighbours Haiti who are in crisis, increasing insecurity in the region. President Abinader has promised to be tougher on Haiti with the 164km border fence and he has also suspended visas for Haitians to control migration and stop the smuggling of drugs over the border. According to the IMF, real GDP will grow 5.1% in 2025 after 5% in 2024. This boom has been attributed to the booming tourist sector boosted by a record number of visitors in recent years. In addition, a free trade deal with biggest trading partners the US (CAFTA-DR) and a good relationship with the US being the largest source of FDI in the country has supported a stable growth environment. As a result, the current account deficit is set to shrink from -3.4% in 2024 to -3.2% in 2025. The economy does however still depend heavily on highly volatile oil imports and the conditions of the big trading partners like the US. A 3.4% average inflation increase in 2024 and 4.5% is forecast by the IMF. Increased inflation due to the removal of fuel subsidies, increasing food prices and a weaker peso is a cause for concern, however remains in range of the CBRD’s 4% +-1% inflation target. The IMF also expect government debt to GDP to fall from 59.2% this year to 58.1%. Tax reform to better collect tax and the removal of subsides will give more fiscal headroom for Abinader to push forward his Public Investment Plan to improve infrastructure, transport and public services. The Dominican Republic will remain an economy reliant on external financing as the risk of doing business remains medium. The inability of the government to provide fiscal stimulus remains medium. A major setback for the economy is the climate crisis, the Dominican Republic is one the most vulnerable countries in the world to the impacts of climate change, having been affected by Hurricane Beryl in 2024. The country remains committed to becoming more climate resilient and the Paris Agreement as they stated at COP 29. Supply chain disruption is medium.

Ecuador (ECU)

Ecuador’s overall risk remains medium high. Daniel Noboa remains president after his 2023 election victory. His term will end in 2025 after the former president Luisa González dissolved parliament suddenly due to his impeachment trial. Political violence and interference are medium high and legal & regulatory risk is medium. Drug gang violence is the major issue in Ecuador. Noboa’s administration are at war with the violent drug gangs. Despite the president’s tough stance, prisons are overfilling, leading to lots of violence in prisons and many have escaped. Early in 2024, Fabricio Colón, one of the leaders of the major gangs in Ecuador, escaped prison, this prompted the president to act and declare a state of emergency in the country. Gang membership is said to be at least 50,000 and Ecuador now have the highest murder rate in Latin America. The conflict has caused lots of the population to displace and the economy to slow. Events in April where police raided the Mexican embassy in Quinto and captured their former vice-president has left their relations with Mexico in tatters, with the threat of the case being sent to the international court. The risk of doing business is thus high. Security issues have halted economic growth 0.3% projected for 2024 and 1.2% for 2025, according to the IMF. Ecuador continues to have strong potential in the oil sector, however the crisis has stalled oil production and discouraged FDI. The current account deficit is expected to fall modestly from 2.8% of GDP in 2024 to 2.4% in 2025. Criminal gangs have been taking part in illegal economic activity such as illegal mining and smuggling drugs into the supply chain, affecting government revenue, despite a rise in VAT from 12% to 15%. Government spending on defence is high which has increased debt in the last year but the hope of an improving situation and economic recovery should boost revenue and reduce debt in the short to medium term. Sovereign non-payment risk is medium and the inability of the government to provide fiscal stimulus is medium high. The economy is very reliant on aid to finance itself in the crisis. Ecuador is benefitting from an IMF Extended Credit Facility agreement worth USD 4 billion. Ecuador is dollarized economy.  Slowing economic activity is also to be attributed to 1.9% inflation in 2024 and 2.2% expected by the IMF in 2025. Ecuador have one of the most diverse ecosystems in the world, however they remain very vulnerable to increasing temperatures in Latin America and the implications of storms in hurricane season. This year, Ecuador’s hydroelectric dams have been hit hard by the impacts of the El Nino climate crisis, leading to energy outages. Supply chain disruption is currently medium. 

Haiti (HTI)

Haiti’s overall risk level is high. In April, a nine-member transitional council was introduced, with Patrick Boisvert acting as interim Prime Minister, in order to promote stability and lead to a return to a democratic rule with an election and a new president in early 2026. This has come after former PM Ariel Henry resigned amid a continuing period of gang violence and trouble. A proposition backed by the US. Former PM Henry has remained abroad after gangs prevented his return to Haiti from a visit to Kenya, less than 3 years after he took over Jovenel Moise who was assassinated in Port-au Prince in 2021. This uprising of gang violence has continued and a UN report in September showed on average 13 people have been killed each day this year and some schools, airports and hospitals have been forced to shut down. Haiti is receiving strong international support in their anti-gang mission, most notably from Kenya who have been delivering civilian contractors to free up living space for 1,000 Kenyan police officers in Haiti, to help boost security in the capital which is heavily controlled by gangs. The US pledged USD300 Mln worth of funding. On top of and in part due to security issues, Haiti remains one of the poorest countries in the Western Hemisphere. The risk of doing business as well as legal & regulatory risk are therefore at a very high level. This has resulted in the IMF projecting negative real GDP growth expected at -4.0% for 2024 but then a 1.0% increase in 2025, dependent on the success of the response to the security issues. Haiti does always remain very vulnerable to extreme weather, particularly in hurricane season. Despite Haiti being able to avoid any significant damage from Hurricane Beryl, the risk persists, reflecting a high supply chain disruption risk in its heavily agriculturally based economy. In addition, inflation remains a massive problem for the economy, with gang violence impacting the transport of goods and disrupting economic activity. The IMF estimate 26.0% inflation in 2024 and a 20.7% rise in average prices in 2025, which is heavily impacting private consumption and investment, particularly for the poorest in society.

Honduras (HND)

Honduras’s overall risk is medium high. President Xiomoro Castro was elected in 2021 with the mandate of tackling difficult challenges in Honduras such as drug trafficking gangs and promised to provide more social justice and transparency in the country. However, in the eyes of many, limited progress has been made and corruption levels remains high. Earlier this year, Castro’s predecessor President Juan Orlando Hernández was sentenced to 45 years in prison for facilitating the transit of drugs into the US for cartel money, reflecting the drug trafficking issue in the country. Legal & regulatory risk and the risk of doing business are both high. Despite progress, poverty levels are high in one of Central and Latin America’s poorest economies leading to many from Honduras illegally immigrating to the US. Relations with the US remain vital as they are Honduras’s biggest trade partner, importing around 45% of Honduras exports, meaning the threat of Trump tariffs is a real cause for concern. President Castro has been very critical of US policy towards Honduras describing their ‘’interference’’ and ‘’interventionism’’ as ‘’intolerable’’. According to the IMF, real GDP will grow by 3.6% in 2024 and 3.5% in 2025. Slowing growth can be attributed to slowing US demand for Honduran textiles and consumers and businesses still feeling the impact of the energy crisis which saw inflation hit 9.1% in 2022. The IMF anticipate inflation to be 4.6% in 2024 and 2025, despite the policy rate not being increased in this period and only being increased from 3% to 4% in August. The current account is expected to be in deficit again at -5.3% of GDP in 2024 and -5.1% of GDP in 2025, with falling US demand for manufacturing exports and a fall in remittances and now the threat of the new US administration imposing tariffs. The Honduran Lempira has depreciated in recent months and again after Trump’s election victory in November. Exchange transfer risk is medium. In addition, Honduras is vulnerable to the impacts of climate change as they are highly exposed to extreme weather patterns and the threat of the El Niño crisis. Honduras have been subject to droughts and this will have negative consequences on the agricultural sector. Supply chain disruption risk is medium high. President Castro’s Public Investment Program is however boosting capital spending, with help from a USD 607 million loan from the Central American Development Bank. Banking sector vulnerability is now down to a medium low level.

Mexico (MEX)

Overall risk for Mexico is at medium-high. The beginning of Claudia Sheinbaum's presidency is marked by the approval of controversial reforms. The coalition led by MORENA was able to gather the qualified majority in both chambers of the Congress, meaning they can approve constitutional reforms without relying on deals with the opposition. During López Obrador's presidency, some laws approved were declared unconstitutional by the Supreme Court.

Now, the Congress has approved a controversial reform in which all federal judges will be dismissed and elected by popular vote in an election set to occur in 2025. This reform will likely allow MORENA to approve anti-market policies, ruling out any opposition the Judiciary system could impose. Additionally, an energy sector reform, which goes against some of the USMCA deal articles, was approved, increasing the participation of state companies in the electricity market.

Political violence risk is at high due to the high level of homicides generated by the narco war. Recently, some mayors were assassinated in zones controlled by narcos, and there is a fear that narcos-backed candidates could infiltrate the judicial system via the new electoral scheme. Legal and regulatory risks are at high as the new government can now change the rules of the game to increase state interventionism in the economy. Political interference is at medium-high due to the control the ruling party MORENA now has over the institutions.

Supply chain risk is at very high due to the violence levels in some regions of the country. Sovereign non-payment risk is at medium as Mexico's debt stands at around 48% of the GDP and has not reached alarming levels. Exchange transfer risk is at medium as the country holds an adequate level of foreign reserves to comply with its obligations in foreign currency.

The risk of doing business is at medium-high due to the level of bureaucracy in the country and the risk of sudden changes in regulations which could damage businesses set in Mexico. Banking sector vulnerability is at medium-low as the banking system holds adequate levels of liquidity and we foresee no major banking crisis. Finally, the inability of the government to provide stimulus is at medium-high mainly due to the increase of deficits in 2024. The budget for 2025 proposes a 2% of the GDP consolidation which will be challenging and will curb the government's capabilities to stimulate the Mexican economy.

Panama (PAN)

Panama’s overall risk level is medium. José Raúl Mulino is president having won May’s elections after former President Ricardo Martinelli dropped out of the race because he was convicted for money laundering. The top priorities for the new administrations include restoring macroeconomic stability, halting immigration, controlling crime rates and helping Panama become more environmentally sustainability. All of this helps to make Panama increasingly more attractive to invest in and set up business. However, the ruling party doesn’t have a majority in the National Assembly, holding just 15 out of the 71 seats. In Mulino’s inauguration speech, he announced that Panama would close its Darién gap to stop a huge influx of migrants crossing into Panama through its southern border. Last year, more than half a million people crossed the gap. A move which is likely to be popular with the US administration, who Panama aim to work with on the matter, as they also want to crackdown on illegal movement on the continent. Political interference is deemed medium and legal & regulatory risk medium high. According to the IMF, growth is anticipated to continue to be at more modest levels compared with recent years. 2.5% growth for 2024 and 3.0% for 2025 will be supported by a diverse range of sectors such as tourism, business services and copper production. However, the repercussions of the mining crisis and the closure of the Cobre Panamá copper mine are still being felt. A current account deficit of -0.4% of GDP for 2024 and -0.5% for 2025 is forecast by the IMF and Panama remains a big recipient of FDI to finance the trade deficit as they are remaining reliant on oil imports. In addition, Panama has experienced one of its driest years on record having been affected by significant droughts in 2024. The El Niño climate crisis has caused low water levels in the Panama Canal. This has affected the number of ships being able to operate in the canal. However, Panama are one of few carbon negative countries, highlighting their commitment to being sustainable and adapting to the increasing climate threat. Supply chain disruption is medium. The droughts have also put pressure on the poorest in Panama accessing sufficient water. There remains huge inequality and poverty with progress on this issue halted by the end of government emergency transfers (NPPS). Mulino’s government are also making strides in cutting the budget deficit projected to fall to 3.2% of GDP for 2025 after a 4.3% deficit in 2024 due to election year and the drought response.  This will bring back macroeconomic stability and bring up investor confidence in their highly dollarized economy. Sovereign non-payment risk is deemed medium. This confidence likely to be boosted by stable inflation of 1.3% for 2024 and 2.0% for 2025. Exchange transfer risk is medium and banking sector vulnerability is medium high.

Paraguay (PRY)

Paraguay’s overall risk remains medium. Santiago Peña is President after his 2023 election victory, promising the country that his administration will fight against key issues in Paraguay such as high levels of crime and corruption as well as the need to modernise the economy. Progress so far has been limited, leaving President Peña’s popularity falling. President Peña wants Paraguay to become a place where foreign investors want to do business. The current risk of doing business is medium high, largely due to corruption issues. There is pressure on the President to pass a new bill approved by Congress in which the government would have greater control over non-profit organisations (NGOs) to prevent issues such as money laundering and external interference. It would entail these organisations to report minute details about funding and employees and authorities would have the power to shut down organisations temporarily or block payments, there is widespread pressure from the UN and allies to veto this bill however which would likely put off investors. A bill being supported by former President and current President of the ruling Colorado party, Horacio Cartes, who is still being sanctioned by the US treasury due to corruption. Political interference and legal & regulatory risk are both medium high. In terms, of the economy, growth is expected to remain stable and under control with the IMF anticipating 3.8% real GDP growth in 2024 and 2025. A recovery in the agricultural sector is likely to contribute towards growth in 2024 and 2025 after it has suffered in recent years due to the severe droughts that Paraguay have experienced. A positive trade balance and a boost in remittances from expatriates’ workers from the US and Spain will see their current account deficit reach -0.6% of GDP in 2024 and -2.5% in 2025, a vast improvement on the -7.1% deficit in 2022.  Government debt to GDP is expected by the IMF to modestly fall from 41.9% of GDP in 2024 to 41.2% in 2025 after the budget deficits in recent years have remained higher than the 2.3% government target off the back of the devastating droughts and election year in 2023. The inability of the government to provide fiscal stimulus is now down to a medium low level. Inflation is back down from 2022’s 9.8% increase in price with 3.8% expected for this year and a 4% average increase in prices expected for 2025, according to the IMF, reflecting restored macroeconomic stability. However high poverty, corruption and climate risks is expected to hold Paraguay back from becoming a high income economy. Supply chain disruption is medium high.

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