Asia: Select Country Risk Ratings

Bangladesh (BGD)

Bangladesh faces intricate political dynamics following Prime Minister Sheikh Hasina Wajed's Awami League (AL) securing a fourth consecutive term in the January 2024 elections. With a commanding majority of 271 seats in the 350-seat parliament, the AL's governance is marked by significant legislative control but also highlighted by the absence of effective opposition, notably due to the Bangladesh Nationalist Party's (BNP) boycott and a low voter turnout of 40%. This situation has sparked concerns over electoral legitimacy and democratic processes, compounded by allegations of electoral irregularities and controversies surrounding the treatment of opposition figures like Khaleda Zia, whose imprisonment has drawn international scrutiny. Uncertainty regarding succession within the AL adds another layer of complexity to Bangladesh's political landscape, potentially impacting stability moving forward. The official opposition is led by the Jatiya Party, which, with only 13 seats in parliament, has no effective impact on policy deliberation.

Economically, Bangladesh confronts challenges amidst IMF-prescribed reforms aimed at fiscal consolidation and subsidy rationalization. Public discontent over rising costs, particularly fuel and electricity prices, has sparked protests, testing the government's ability to balance economic stability with public sentiment. The government's commitment to these reforms is pivotal for sustaining IMF financial support, crucial for economic stability and growth prospects. As a consequence, bouts of protests are likely in Bangladesh from time to time. But AL’s strong hold on power and institutions suggests that these protests will be handled with suppressive tactics and a heavy-handed crackdown. Radical Islamist groups will continue to pose a risk of intermittent violence and acts of vandalism. The government's robust control over security forces enables them to effectively manage and mitigate the overall threat of terrorism.

Internationally, Bangladesh navigates complex geopolitical dynamics, engaging with global partners while preparing for its graduation from the UN's least-developed country status by 2026. Trade negotiations with Japan, Malaysia, and Singapore reflect strategic economic engagements aimed at bolstering Bangladesh's global trade presence. Joining initiatives like the Global Biofuel Alliance (GBA) aligns with Bangladesh's commitment to sustainable energy initiatives and environmental objectives. Bangladesh will look to balance ties with India even as it aims to reduce its dependence on its neighbor.

India (IND)

The political stability outlook for India has weakened following the closely contested general election held between April and June 2024. The ruling National Democratic Alliance (NDA), led by the Bharatiya Janata Party (BJP), secured a narrow majority in the 543-member Lok Sabha (lower house), clinching 292 seats, just surpassing the 272-seat threshold needed to govern. The BJP's reliance on key coalition partners to maintain its parliamentary dominance leaves the alliance susceptible to defections. Despite this vulnerability, the BJP-led government will successfully complete its term until 2029. In a surprising turn, the Indian National Congress, the primary national opposition, performed better than anticipated, bolstering its presence in the Lok Sabha. The Congress-led opposition alliance, known as the Indian National Developmental Inclusive Alliance (INDIA), secured 234 seats, buoyed by strong showings from regional leaders in states like West Bengal, Maharashtra, and Uttar Pradesh. The rising influence of regional leaders underscores a shifting landscape in Indian politics, potentially introducing new contenders for national leadership roles. The Congress party is unlikely to shift away from dynastic leadership, as it struggles to elevate other senior leaders to national prominence.

Narendra Modi, India's Prime Minister since 2014, returned for a third consecutive term in June amid a ballot largely viewed as a rebuke of the BJP's contentious campaign rhetoric and handling of issues such as the COVID-19 pandemic and employment generation. The reduced margin of the BJP-led alliance and strengthened opposition suggest diminished government control over public institutions and media, heralding increased checks and balances within the democratic framework. Meanwhile, the election outcome reaffirms the robustness of India's democratic processes.

Looking ahead, the spectre of parliamentary gridlock looms large, given the NDA's slim majority in the lower house and minority status in the upper house. This will hinder the passage of contentious economic reforms, including business-oriented land and labor reforms, as the opposition wields its augmented numbers to block significant legislative agendas. Social reforms like the Uniform Civil Code will also face staunch opposition within the coalition, fostering social stability amidst political deadlock.

Meanwhile, security concerns persist, particularly in Kashmir, where extremist groups maintain a high threat level, necessitating a robust security presence. More recently, the state of Kashmir has seen increased militant activity, which has led to anti-terrorism military initiatives in the region. However, these threats are unlikely to disrupt overall business activities across the country. Similarly, the ongoing ethnic violence in the state of Manipur will likely persist in the near term but will have limited impact on India’s overall political stability.

Indonesia (IDR)

In February 2024, Prabowo Subianto, the incumbent defense minister and presidential nominee from the Great Indonesia Movement Party (Gerindra), won the presidential election. He will assume office in October 2024, succeeding Joko Widodo (Jokowi), who is constitutionally ineligible for a third term. Mr. Prabowo's vice-presidential nominee is Gibran Rakabuming Raka, Jokowi's son. This transition signifies a continuation of Jokowi's political influence, given Gibran's prominent position and Jokowi's maintained political sway through his network. With a change in presidency on the horizon and elevated global geopolitical risks, foreign investors are likely to remain wary but the overall political landscape will remain stable.

Mr. Prabowo's administration is expected to follow Jokowi's strategy of integrating politicians from opposition parties into the government, fostering a sense of unity. However, the Indonesian Democratic Party-Struggle (PDI-P), the largest party in the legislature, is poised to be the main opposition. The relationship between PDI-P leader Megawati Soekarnoputri and Jokowi is strained, indicating potential legislative friction during Mr Prabowo’s term. Despite this, social unrest is unlikely, though policy-making efficiency may suffer due to divergent views between the executive and legislative branches. Economic policies under Mr. Prabowo's government will continue to prioritise infrastructure development and foreign direct investment (FDI), particularly in the downstream processing of commodities and the electric vehicle (EV) sector. However, the progress on infrastructure projects, including the new national capital, Nusantara, is expected to be slow. The focus will remain on Java and Sumatra islands, with the high-speed railway connecting Jakarta and Bandung as a notable project. Social policies will emphasise food security and price stability, with initiatives to increase farm output and implement a food estate program. The February 2024 general election highlighted the growing influence of younger voters and social media. Despite past allegations of human-rights violations, Mr. Prabowo successfully rebranded his image, showcasing the power of digital engagement in Indonesian politics. Local elections in November 2024 will test Gerindra's popularity, particularly in Jakarta. The competition between Anies Baswedan (likely supported by PDI-P) and Ridwan Kamil (backed by Gerindra) will be a critical indicator of the party's standing. NasDem's endorsement will also significantly impact the political landscape. Jokowi's influence will persist through his son's roles: Gibran as vice-president and Kaesang Pangarep as the leader of the Indonesian Solidarity Party. This dynamic ensures that Jokowi remains a key figure in Indonesian politics even after stepping down from the presidency.

Indonesia will maintain a neutral stance in its international relations, balancing ties with major powers like China, Russia, and the West. Improved relations with Malaysia, following the resolution of maritime disputes, and collaboration with Australia on EV battery resources highlight Indonesia's strategic regional partnerships. China remains Indonesia's largest trade partner and investor, particularly in infrastructure and mining. Despite tensions in the South China Sea, Indonesia will avoid direct confrontation with China, instead asserting its sovereignty through military drills. Indonesia seeks to strengthen ties with the US and the EU to attract investment for its green industry and renewable energy transition.

Overall, the transition to Mr. Prabowo's presidency, coupled with Jokowi's enduring influence, suggests continuity but with potential legislative challenges. Policy trends indicate a focus on infrastructure, economic development, and environmental sustainability, albeit with slower progress and limited anti-corruption efforts. Internationally, Indonesia's neutral stance and strategic partnerships will continue to shape its economic and diplomatic engagements. Indonesia’s political landscape will thus see limited risks to instability.

Malaysia (MYS)

Malaysia's current political environment, led by Prime Minister Anwar Ibrahim and his Pakatan Harapan (PH) coalition, maintains a semblance of stability despite underlying complexities. Despite challenges, the outlook on Malaysia's political stability is positive, anchored by Anwar's adept coalition management and policy pragmatism. Anwar heads a unity government that includes United Malays National Organization (UMNO), a dominant force within the Barisan Nasional (BN) coalition, signaling a strategic alignment aimed at accommodating pro-Malay sentiments crucial for maintaining parliamentary stability. This coalition architecture, necessitated by Malaysia's multi-ethnic composition, is underpinned by affirmative action policies favoring bumiputera (indigenous people), which Anwar treads carefully to uphold amid pressures for progressive reforms. The delicate balance between ethnic preferences and governance imperatives underscores Anwar's approach to sustaining coalition unity while addressing broader socio-economic disparities. Electoral dynamics in Malaysia reflect evolving voter sentiments, particularly evident in recent state elections that underscored growing Malay support for the opposition Perinatal Nasional (PN) coalition. UMNO's electoral resurgence, despite internal challenges stemming from corruption scandals involving prominent leaders like Najib Razak and Ahmad Zahid Hamidi, poses a significant electoral challenge to Anwar's PH coalition. Further, ethnic divisions will remain a significant aspect of Malaysia's political terrain, with expectations of heightened tensions in the foreseeable future. These issues stem from discontent among non-Malays regarding policies perceived as favouring bumiputera, who constitute approximately 70% of the population

Internationally, Malaysia navigates a path of diplomatic pragmatism, maintaining equidistance between major powers like the US and China while deepening regional engagements through ASEAN and other middle power collaborations. Geopolitically, Malaysia's response to regional challenges, including China's assertive actions in the South China Sea, has involved enhancing security cooperation with the US and Japan. Economically, Malaysia's strategy focuses on bolstering trade ties through agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Bilaterally, Malaysia's relations with Singapore remain stable, driven by mutual economic interdependence and ongoing infrastructure projects like the high-speed rail initiative. Despite occasional disputes over territorial and economic issues, both countries maintain a pragmatic approach to bilateral relations, ensuring continuity in economic cooperation and regional stability. An open conflict between the two is unlikely.  Looking forward, Malaysia's political landscape under Anwar's leadership faces the dual challenge of maintaining internal cohesion amid ethnic diversity and navigating external pressures in a rapidly evolving global context.

Nepal (NPL)

Across the border from India, political risk in Nepal remains pronounced as the country grapples with ongoing internal power struggles under the leadership of Prime Minister Pushpa Kumar Dahal, head of the Communist Party of Nepal (Maoist-Centre) or CPN (MC). Despite forming a coalition with four other parties early in 2024, the government's stability is tenuous, highlighted by recent rifts with the Nepali Congress (NC) and internal disputes over cabinet appointments and policy directions. The survival of a confidence vote in March 2024 provided temporary respite, but the prospect of early elections looms, potentially disrupting governance and policy continuity ahead of scheduled polls in 2027. In the current 275-member house, the coalition commands a majority with 142 seats, constituting 51% of the total. Meanwhile, the largest opposition party holds 88 seats, marking a significant presence outside the ruling coalition. Prime Minister Dahal and CPN (UML) Chairman Oli have committed to steering the coalition government until the scheduled elections in 2027, yet the potential emergence of new alliances remains a realistic prospect. Lessons from the Nepali Congress’ experience underscore the challenges inherent in maintaining unity within a coalition of communist factions, as issues related to power-sharing often overshadow ideological unity. Economic reforms, including ambitious infrastructure projects and initiatives to boost private-sector investment, are pivotal to Nepal's development agenda. However, progress is hindered by administrative delays and political discord, undermining efforts to attract international investment and stimulate growth.

Internationally, Nepal's strategic alignment with China is increasingly evident, marked by collaborations on infrastructure projects under the Belt and Road Initiative. This alignment, while facilitating development funding, also intensifies geopolitical competition in the region, notably concerning the US' interests. Despite these shifts, Nepal maintains strong ties with India, rooted in trade and historical bonds, though unresolved territorial disputes strain diplomatic efforts. However, open conflict with India is unlikely.

Sri Lanka (LKA)

Political instability looms over Sri Lanka as it heads towards presidential elections slated for October 2024. The current interim president, Ranil Wickremesinghe, from the United National Party (UNP), took office amid widespread protests following the departure of former President Gotabaya Rajapaksa in July 2022. Despite the UNP's poor showing in the 2020 parliamentary elections, Wickremesinghe was appointed by the Sri Lanka Podujana Peramuna (SLPP) to serve out Rajapaksa's term, emphasising the coalition's fragile unity. Wickremesinghe has been successful in securing the IMF package and ensuring IMF-recommended reform progress, which has resulted in the country coming out of bankruptcy. The president has secured a bilateral debt restructuring deal and is in talks with bondholders to restructure commercial debt. Sri Lanka is likely to offer macro linked bonds to its bondholders as part of the debt restructuring deal. In the run up to the elections, the government is also announcing tariff cuts, which were introduced earlier as part of reforms to ensure state-owned enterprises turn profitable. A withdrawal of subsidies saw backlash from the public in 2023. However, recent cuts in electricity tariffs and fuel prices have been welcomed by the public. Public sentiment against austerity measures poses a formidable challenge to policy implementation and economic stability and is expected to stoke protests from time to time. Low level protests from different industry stakeholders, public sector employees etc. are expected over the rest of 2024.

Domestically, calls to postpone the upcoming elections for two years have surfaced, driven by hopes of economic improvement bolstering electoral prospects. Yet, such proposals are divisive within the governing coalition, risking further political fragmentation and legislative deadlock. Wickremesinghe's administration faces internal dissent and waning public support, complicating efforts to sustain economic reform agendas crucial for securing IMF support and stabilizing Sri Lanka's financial outlook. The government has announced though that elections will be held as planned in October. Meanwhile, parliamentary elections have been postponed to 2025 along with local body elections.

Looking ahead, Sri Lanka's political landscape remains fraught with uncertainty. The outcome of upcoming elections and ongoing economic reforms will determine the country's trajectory amid regional power dynamics and global economic pressures. Balancing competing interests from major bilateral partners and navigating internal political challenges will be decisive factors shaping Sri Lanka's future stability. The likelihood of resurgence of protests like those seen in 2022 are slim.

Vietnam (VNM)

Vietnam has a medium-high overall risk. The country has been involved in political upheaval since January 2023, when former President Nguyen Xuan Phuc resigned after being accused of wrongdoing by officials under him as part of an anti-corruption movement within the Communist Party. Nearly a year later, his successor, President Vo Van Thuong, also resigned after the government argued that he had broken party rules and damaged its reputation. In May 2024, former public security minister To Lam was appointed President of Vietnam. In this context, political violence poses a medium risk, and some stability is expected with the new appointment; failure to achieve this, could threaten the country’s position as an investment destination. The frequent changes of presidents reflect how embedded corruption is in the system; however, this is not the only issue companies and individuals face in Vietnam. Other challenges include limited freedom of speech, irregular enforcement of laws, inconsistent regulatory interpretation, and frequent changes in tax rates, all of which contribute to a medium-high risk within the legal and regulatory landscape. In addition to institutional risks, supply chain disruptions pose medium risks. These disruptions arise from various factors, including a lack of highly skilled labor and infrastructure, natural disasters, and power outages resulting from surges in power demand during heatwaves. Due to these challenges, the country faces a medium-high risk of doing business. Historically, Vietnam has benefited from a stable political environment and high rates of economic growth, but these factors have weakened in recent years. On the upside, Vietnam’s Deputy Prime Minister has recently highlighted that the government will continue working towards lowering lending interest rates, delaying debt payments and reducing taxes to support business. On the economic front, the IMF expects Vietnam to grow 5.8% in 2024 and 6.5% in 2025. Similarly, the World Bank foresees factors such as increasing global demand and restored domestic consumer confidence to contribute to the country’s growth. Coupled with these elements, resilient foreign direct investment and accommodative policies will help economic growth, according to the IMF. Additionally, the Fund expects the country’s gross debt as percentage of GDP to decrease from 33.5% in 2024 to 32.9% in 2025, making the sovereign non-payment a medium level risk. The risk associated with the government's inability to provide stimulus is deemed medium-low, consistent with an expected large public wage increase and ongoing efforts to accelerate public investment. Both the exchange transfer and the banking vulnerability sector are medium risks. The Vietnamese Dong depreciated by around 8% year-on-year by June 2024. Some factors behind this include the delay in the Fed’s easing cycle and stronger growth in imports compared to exports. To combat this situation, the country’s central bank has announced plans to continue selling dollars to some banks as a way of intervening in the foreign exchange market. International reserves have recovered since November 2022 after reaching an all-time high in Q1 2022. In the banking sector, Vietnam’s Premier Pham Minh Chinh has ordered banks to accelerate credit growth to 5%-6% in Q2 2024 by cutting operational costs. Finally, the Fund sees the new Law on Credit Institutions as a good step to strengthen supervision and governance of financial institutions.