Asia Country Risk Ratings

Cambodia (KHM)

Cambodia’s overall risk is medium high. Hun Manet is now Prime Minister after he took over his father, Hun Sen, who stepped down after the July 2023 elections, but his influence remains. For example, in February’s senate elections, the ruling Cambodian People’s Party won 55 out of 58 seats and Hun Sen was appointed as President of the Senate. This came months after the CPP won 120 out of 125 seats in parliament, giving them overwhelming control. These elections were condemned by both the US and the EU. Political interference is high and legal & regulatory risk is very high as human rights and democratic issues remain. For instance, an opposition politician, Teav Vannol was charged of defamation and fined USD1.5 million for criticising the current democratic situation in Cambodia, highlighting the continued repression against political opposition, making the risk of doing business very high. According to the IMF, Cambodia’s economy will continue to show promising growth figures at 6% this year and 6.1% in 2025, as they also forecast government debt to be 26.4% of GDP in 2024 and 26.2% in 2025. Despite this still being higher than pre-COVID, it is a level below the 50.0% estimated government debt to GDP in low-income developing countries in 2025. As a result, sovereign non-payment risk is medium and exchange transfer medium low. In addition, a stable though persistent current account deficit is expected at -3.5% of GDP in 2024 and -4.1% in 2025 as tourism continues to recover after a downturn during the pandemic. Cambodia are also benefitting from major FDI from China, to help close their infrastructure gap which will help them attempt to achieve middle income status in coming years. This includes the USD1.7 billion Funan Techo canal and the USD1 billion Siem Reap-Angkor International Airport- which comes under China’s Belt and Road Initiative. Supply chain disruption is remaining at medium high as Cambodia continue to rely heavily on the domestic agricultural sector which is vulnerable to changing weather patterns and climate change risk. Cambodia’s currency, the Riel KHR, is a managed peg against the USD. Cambodia are a highly dollarized economy so much of their outlook is reliant upon the U.S. Federal Reserve interest rate decisions. With the Fed on course for potentially multiple rate cuts by the start of next year, this should help Cambodia with lots of private sector debt issued in USD. Banking sector vulnerability risk has now fallen to a medium level.

China (CHN)

China’s overall country risk score remains at medium, with the legal and regulatory risk remaining at medium high, and political interference at medium.  Political control of the economy is more evident compared to the 1990-2019 period.  The focus is on boosting high tech manufacturing and energy production domestically to ensure greater resilience for China. However, other private businesses have not seen support and have faced intermittent crackdowns, e.g., technology companies.  This has tempered private sector business investment and employment growth (and hence income and consumption growth). Residential investment also remains a drag on the economy, with excess completed and uncompleted houses weighing on the sector.  Supportive measures from the government has so far not been of a sufficiently large scale.  A structural boost of consumption is required to stop trend growth from slowing. This requires increased government spending on health, education and pensions to reduce precautionary household savings, but the government shows no interest in large scale change.  Internationally, the key issue is U.S./China relations and the outcome of the U.S. presidential election.  If Donald Trump is elected then the threat of a renewed trade war would dominate, though it took 2 years before tariffs were imposed in Trump’s first term. If Kamala Harris were elected, then policies similar to Biden strategic restraint of China would likely be evident.  Meanwhile, a significant escalation with Taiwan remains unlikely, given the election of pro-China speaker in Taiwan parliament and the passage of restrictions on Taiwan president by parliament.  Meanwhile, the exchange transfer risk has risen from medium to medium-high. Even so, a current account surplus, plus substantial FX reserves, helps to support this rating (China is also engaged in a multi-year diversification from U.S. Treasuries, including into gold).  The inability to provide fiscal stimulus remains at medium.  China has room for extra fiscal stimulation should slower growth risk a hard landing, while the dominance of domestic investors means that China’s authorities can persuade investors to rollover debt. However, China is also concerned about total debt/GDP, and for now, this points to only further targeted fiscal expansion in 2024 and 2025. Banking sector vulnerability also rose from medium to a medium high rating, due to worries about the long-term downturn in the residential property sector and slow nominal GDP growth. Non-performing loans, primarily held by small and city banks, can be managed through potential takeovers by larger banks and local governments.

Lao PDR (LAO)

Lao PDR’s overall risk is medium high. Bounnhang Vorachith leads the communist state with the next set of legislative elections set for 2026. Laos remain politically and economically unstable. Political interference is medium high and legal & regulatory risk is high. Corruption and crime are high, supply chain disruption is deemed medium high and education and healthcare are very poor, exacerbated by the effects of the pandemic and an extraordinary debt burden. All of which make the risk of doing business high. General gross government debt is falling, however the IMF still forecast it to be at 115.5% of GDP in 2024 and 104.9% of the economy in 2025. The average amongst low income developing countries is expected to be 51.8% and 50.0% in 2024 and 2025 respectively. In addition, cuts in spending is explaining the reduction in government debt, which means they cannot provide sufficient welfare and education, which will halt productivity and slowed growth, which the IMF estimate will be at 4.0% in both 2024 and 2025. Lao PDR have also seen a significant depreciation in their currency, the LAK, against the USD and THB (Thailand are Laos biggest trading partner). Lots of their debt is foreign denominated, including the $2 billion deferred debt from China. This is an ever increasing issue for Laos as the weakened LAK relative to other currencies is making this foreign-denominated debt costlier. Furthermore, the depreciation is fuelling the inflation problem as imports are relatively more expensive. As a result, the inability of the government to provide fiscal stimulus and sovereign non-payment risk are medium high. Average inflation is set to be 21.5% for this year, but then fall to 14.7% in 2025, high inflation will increase uncertainty and reduce private spending. However, despite the debt and currency crises, there has certainly been evidence to suggest scope for growth in tourism in Laos aided by the Laos-China railway which has boosted infrastructure and created jobs in the area. In addition, further growth has been aided by investments into the mining and hydropower industries, although there has been issues surrounding mining companies not reaching industry standards this year. According to the IMF, Laos will operate a current account surplus of 1.7% of GDP in 2024 and 2025.

Mongolia (MNG)

Mongolia overall risk rating remains at a medium level. Ukhnaagiin Khürelsükh is President ahead of 2024 legislative elections. Political violence is medium low, political interference medium high and legal & regulatory risk also medium high. Mongolia has been developing towards a democracy and economy but still are combatting against problems of poverty, corruption and a lack of equal opportunities in areas of the country. The IMF forecast that real GDP will grow 6.5% in 2024 and then by 6% in 2025. Strong growth expected in coming years is likely to be explained by both an increase in exports and large sums of public investment stimulating demand. Mongolia has seen an increase in mining in recent years. Oyu Tolgoi copper mine is one of the world’s biggest copper-gold mines which is set to supply around 500,000 tons of copper annually from 2028, but have been halted by industrial action over miners’ pay this year. However, according to the IMF, Mongolia will operate a large current account deficit (as a % of GDP) of -7.5% in 2024 but worsen to -9.2% in 2025. The risk Mongolia currently and will carry into next year is the worsening economic conditions in China. China is by far the biggest importer of Mongolian goods (91.2% share in the value of Mongolian exports in 2023, according to Trade Map). China is currently experiencing an economic slowdown and the weak domestic demand in China is and will continue to impact Mongolia. In addition, Mongolia remain affected by the war in Ukraine. Mongolia depend heavily on essential imports from Russia such as fuel, but sanctions imposed from the West on Russian banks and companies have caused payment issues harming Mongolia. Furthermore, the IMF expect inflation to be at 10.8% in 2024 and 9.5% in 2025. Climate change continues to pose problems for Mongolia with more extreme weather and harsher winters negatively impacting agriculture and causing the loss of a significant number of livestock. However, the government have this year announced a commitment to spend $127 million on conservation over the next 15 years. The risk of business is deemed as medium high. After a post-COVID period of austerity to reduce high levels of government debt, government spending and therefore government debt is set to increase again. According to the IMF, government gross debt (as a % of GDP) will be 47.9% in 2024 and 48.1% in 2025. High levels of debt and contingent liabilities could halt the longer-term public expenditure needed but we expect government revenue to increase due to mining. All together making the inability of the government to provide fiscal stimulus now at a medium low level as sovereign non-payment risk is. But a lot of Mongolia’s outlook depends on Chinese economy.

Myanmar (MMR)

Myanmar’s overall risk level is high. Myint Swe remains as acting President with Min Aung Hlaing acting as commander-in-chief and holding lots of the power at the top of the military junta. Political interference and political violence are at high levels as civil war against the ruling military government rages on. As things stand, the ruling military regime are losing ground to rebel forces. Attacks by rebel groups have weakened the ruling junta and in April, they succeeded in capturing a key military base in Thin Gan Nyi Naung near the trading town of Myawaddy on Thai border. The resistance groups have more of a foothold on the Thai and Chinese border but the military have a stronger grip on the bigger industrial cities. The military regime remains in control but are becoming weaker as more rebel groups are encouraged to support the attacks. Due to the ongoing conflict, a large proportion of the population have been displaced and the UN believe around a third of the population are in need of humanitarian assistance. As a result, relations with the West remain complicated as the US continue to sanction the state-owned Myanama Oil and Gas Enterprise. Oil and gas has been the main way that the military junta have been financing weapons, but they have received support from China and Russia. According to the IMF, real GDP will grow at a rate of 1.5% in 2024 and 2.0% in 2025. Sanctions from the West on key assets and business are continuing to provide challenges for growth. Another factor limiting growth is the plummeting Myanmar kyat. The kyat is pegged to the dollar at a rate of 1USD to 2,100 kyats, but has been trading a lot lower in recent years on the black market including as high as 1USD to 4,500 kyats in June. As a result, the military junta have been arresting people caught trading foreign currency and selling foreign real estate to help reduce this record destabilisation of the kyat, including the arrests of 35 people over 2 days in early June. The people of Myanmar are having to bear this cost of a severely weakened kyat as imports have become relatively more expensive particularly for essentials such as food as the agricultural sector has been damaged due to war and extreme weather, like the category five Cyclone Mocha which hit last year. As a result, inflation is set to reach 15% this year but fall to 7.8% in 2025, assuming the situation stabilises. The risk of doing business is high and supply chain disruption is very high. Falling revenue due to the impacts of war and sanctions on industry is increasing government debt at a modest rate, with the IMF forecasting a level of 58.5% of GDP this year and 59.8% in 2025. Not a dramatic worsening as China and Thailand are helping to fill the void of energy exports and the current account deficit of -6.3% of GDP is set to persist this year and next. Consequently, the inability of the government to provide fiscal stimulus is high and exchange transfer risk is medium high.

Taiwan (TWN)

Taiwan’s overall country risk score of medium-low reflects economic strength and only moderate and intermittent tensions with China over reunification. China’s gray warfare has continued in 2024 with military aircraft intermittently flying close to Taiwan and China’s naval exercises in May.  China is unhappy with the new Taiwan president. However, the gray warfare has not escalated compared to recent years, nor has it been as intense. The dispute over fishing patrols has also eased. China will likely be pleased that a pro-China politician from Kuomintang, Han Kuo Yu, has been elected speaker of the Taiwan’s parliament. Additionally, the parliament has passed a bill that requires the president to make regular reports to parliament, which is seen as a China-friendly policy. This could be a route to a more China-friendly view in some sections of Taiwanese society, which China would want to play out in the coming years and avoiding the alternative very high risk option of invasion. Thus, China will likely continue to pressure Taiwan but stop short of major escalation. Elsewhere, structural economic indicators remain strong helped by a well-balanced economy, controlled inflation and a huge current account surplus.  This leaves exchange transfer at a low rating, while the risk of doing business also remains at a low rating. Risk of sovereign non-payment is medium-low, which reflects the low government debt/GDP trajectory.