A lot is made about the countries with the strongest credit ratings, as rated by top credit rating agencies like Standard and Poor’s, Moody’s and Fitch. Those countries with exemplary credit ratings have reached that coveted position thanks to factors like their diverse global portfolios, wise investing, and freedom of business, all culminating in a “AAA” rating, the highest available.
Of course, some countries fare worse than others in the realm of economics, and are doled out low ratings by the ratings boards. What leads to a low rating?Much of it is based on the way that governments borrow to fund their operations, which results in the country issuing bonds. The credit rating determines the amount of interest they have to pay on that bond. The worse the credit rating is, the higher the interest rate you have to offer on the bond in order to get people to buy them. The better the credit rating, the lower interest on the bond. Since these countries have such a poor credit rating, the interest on their bonds is quite high. The reasons for the weak credit ratings are various, ranging from lack of freedom of business, to a less than ideal global investment portfolio.
Unlike the strongest economies, which mostly share the same rating across the different ratings bodies, the weaker economies are much more split. This article, therefore,uses the rating assigned by Standard & Poor’s. Other ratings boards may have different ratings assigned. For S&P, anything rated BB+ and lower is considered “speculative,” an industry term for what many call a junk bond.
Here are the eleven countries with the lowest credit ratings, arranged in order from best to worst.
Ghana – Population: 23.5 Million – Rating: B
First on the list is Ghana, which has a “B” credit rating. Poor economic management and a large deficit are the biggest factors behind Ghana’s low credit rating, despite the fact that Ghana is seen as one of the most promising economies in Africa. Even though Ghana has large industries spanning gold and oil, government spending is still too high for its costs to be covered. The excessive government spending has led to a deficit and debt that worry economists. Until spending and financial stability is back on track, I do not recommend investing in Ghana.
Honduras – Population: 7.9 Million – Rating: B
Next up is Honduras. Though it recently downgraded to a “B” credit rating in August 2013, the country is doing slightly better than the other countries already listed. Without a stable outlook as projected by S&P, Honduras shows potential progress. However, Honduras has a few issues to rectify. S&P cites vulnerability from the tight budget and rising debt burden as the primary reasoning for its credit downgrade but other factors such as government spending and fiscal freedom attribute to Honduras’ issues. With a limited global portfolio, and Honduras being one of the poorest countries in Central America, I do not recommend investing.
Belize – Population: 324,060 – Rating: B-
The smallest country on our list, Belize has a credit rating of “B-.” Its poor credit rating comes from the country defaulting on loans on multiple occasions. With government debt hovering around nearly seventy percent of GDP, and limited fiscal endeavors, it is difficult for Belize to change its financial situation. According to heritage.org, a website that measures countries economic freedom, Belize ranks as the 102nd freest country, largely due to their failed attempts at economic reform, and institutional weakness. When investing, it would be best to look some place other than Belize.
Jamaica – Population: 2.7 Million – Rating: B-
Fourth is Jamaica, which also comes with a score of “B-.” With all the tourism business Jamaica enjoys, you might think it would have a stronger portfolio. However, Jamaica has several economic issues, including government spending and financial deficits that amount to as much as 140% of their GDP. With a GDP of only 24.8 billion, slight growth of 1.5%, and an unemployment rate of nearly thirteen percent, Jamaica is best left to vacationers, not investors.
Lebanon – Population: 4.4 Million – Rating: B-
Lebanon, like its predecessors on this, maintains a “B-” rating, with a negative outlook. This ranking, by Standard and Poor’s, is because of steady decline in Lebanon’s macroeconomic fundamentals. Ranked the 91st freest country in the world, Lebanon has its fair share of regulatory issues, with lack of business freedom and property rights denying it from creating a stronger economy. However, the country has seen substantial growth in the last thirty years, multiplying its GDP multiple times over. This expansion is primarily based on banking, and the creation of metal products. While there is continued growth and potential for Lebanon, I would hold onto my dollars and not invest there just yet.
Belarus – Population: 9.4 Million – Rating: B-
Belarus has a credit rating of “B-” with a stable outlook. Landlocked in Eastern Europe between Lithuania and Russia, Belarus was upgraded from a “C” rating in May of 2012. The credit rating improvement was made by S&P for Belarus’ “improvements in external liquidity and successful stabilization efforts”. While this is a step in the right direction, Belarus still has a lot of work to do. Government spending and lack of freedom are both issues that Belarus faces. Its rank as the 154th freest country in the world is based on monetary freedom and business freedom both being often neglected, preventing Belarus from becoming a more global economy, and incidentally more attractive to invest in. While it seems Belarus is taking steps in the right direction, it still hasn’t reached a point where it is worth investing in.
Greece – Population: 11.2 Million – Rating: B-
Receiving an overall “B-” rating, Moody’s recently upgraded Greece’s credit rating from a “C” to a “Caa3,” still far below investment grade. The reasoning for the low score is due to extensive issues with national budgets. In 2009, Greece famously had a financial crisis and ultimately had to be bailed out, costing the Eurozone $327 billion. Despite the issues Greece has faced over the past few years, the Greek government has goals to return to international markets in 2014, and Greece’s economy seems to be on the mend. With a substantial drop in government borrowing, Greece may ultimately become attractive to invest in, but not it’s not quite there yet.
Ukraine – Population: 45.5 Million – Rating: B-
Ukraine has a “B-” credit rating with a negative outlook, a result of Ukraine’s debt to Russia, with the relationship between the two countries being very fragile. Other factors also play in to Ukraine’s weak rating. With iron and metal being Ukraine’s only profitable industries, the country is not considered a global power in the slightest. In addition, corruption, limited freedom for business, and significant lack of capitalization all attribute to Ukraine not being a desirable country to invest in.
Egypt – Population: 80.7 Million – Rating: B-
The next country on our list is Egpyt, which has a credit rating of “B-.” There are many factors that attribute to Egypt’s low credit rating, one most certainly being the ongoing political turmoil. With the country still going through a revolution, Egypt’s instability brings anything but reassurance to investors. In an attempt to bounce back, Egypt’s central bank has recently cut interest rates by a significant amount. In addition, Egypt has opened its market to global trade and investment in attempts to boost its GDP. However, because of non-tariff barriers, trade freedom is still lagging. Government spending seems to be in the right place though. The government recently announced that they will spend more than $4 billion dollars in order to create more jobs. Egypt is not a good investment now, but that could easily change if the political unrest ends.
Pakistan – Population: 179.2 Million – Rating: B-
While it has a sizeable GDP of $488 billion, the lack of freedom within the country hinders Pakistan from becoming a true global economy, and is responsible for its credit rating of “B-.” Although it has a wide variety of successful industries, such as automotive, cement, IT, and textiles, it is still not enough to bring Pakistan higher up the rungs of the credit ratings game. Factors like political instability, lack of social progression, and resistance to open markets also inhibit from Pakistan from being a global leader. Out of all the countries on the list, Pakistan has the most potential; the country’s government and leaders just need to start whistling a new tune.
Argentina – Population: 41 Million – Rating: CCC+
The second largest country in South America, Argentina has the lowest credit rating of the continent, and of any country on our list, with a dismal “CCC+” rating as of September 2013. The embarrassingly low rating stems from the fact that Argentina is unable make payments on its restructured debts, while in turn refusing to payback defaulted notes. Argentina’s economic turmoil can be blamed on government spending, as well as government interference in the marketplace, which bring forth many institutional problems. Despite the size, the economy of Argentina is extremely fragile, and make it an undesirable investment.
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