Download the report and 2021 country rankings.

“External vulnerabilities of countries struggling to put the Covid-19 crisis behind them are particularly relevant today given uneven recoveries, rising inflation and a new cycle of tighter monetary policy,” says Levon Kameryan, senior analyst in Scope’s sovereign and public sector team and co-author of Scope’s annual external risk report.

“Amid threat of a wider emerging market crisis, close monitoring of external risk is crucial at this exact stage in the transition between the ups and downs of the pandemic crisis and fresh undulations in markets as central banks begin ‘normalisation’ of extraordinary policies,” said Dennis Shen, director and co-author of today’s report and rankings.

Argentina and Turkey continue to rank among 10 economies most at risk under an expanded 95-nation country sample, while the UK, ranked 43^rd, is just one example of an advanced economy whose exposure to external risk is greater than is frequently perceived. Others may include Sweden (35), France (30), Canada (24), and the US (20).

By contrast, Belgium (6) and Italy (8) are two of Europe’s highly indebted sovereigns, which are nevertheless top-10 ranked when it comes to their external sectors. Switzerland, Malta and Japan are a “sturdy-3” of most resilient nations.

Scope’s annual external vulnerability and resilience rankings evaluate countries on 1) underlying vulnerabilities to a potential balance of payment crisis; and 2) economies’ degree of underlying resilience when exposed to such external crisis, with an overall ranking that combines vulnerability to and resilience in crisis.

The US (AA/Stable) and UK (AA/Stable) are examples of advanced economies that score comparatively poorly as far as external vulnerability – 70^th and 55^th respectively – due to open economic structures, current account deficits and negative net international investment positions – but much better on resilience – 3^rd and 35^th respectively – not least as issuers of two of the world’s safe-haven reserve currencies in dollar and sterling.

In sharp contrast, Lebanon, Zambia and Angola are 2021’s risky-3 of most vulnerable and least resilient economies to external shock. 2020’s risky-3 of Georgia (rated BB/Stable), Argentina (unrated) and Turkey (B/Negative), alongside El Salvador, Belarus, Sri Lanka and Armenia, make up a remainder of a top 10 most at-risk nations in 2021. These countries share features such as high foreign-currency exposure, currencies vulnerable to periods of risk aversion among international investors, wide current-account deficits and risk of capital outflows, amplified by low foreign-exchange reserves and/or significant maturing external debt.

“The risk of further credit events entering 2022 is high under more inflationary conditions globally and potential of ‘taper tantrum’ as central banks remove stimulus, with possibility of further rises of global bond yields,” said Shen.

Sovereign credit defaults reached a record in 2020 amid the Covid-19 crisis. Zambia and Lebanon defaulted. Argentina, one of Scope’s 2020 risky-3, defaulted twice.

“Developing economies are particularly at risk,” said Kameryan. “Unlike mature economies, they have less-sophisticated domestic financial systems and are burdened with ‘original sin’ in more limited capacity to issue debt in domestic currencies to a sizeable-enough domestic investor base, resulting in higher structural dependency upon external credit, posing debt-payment risk when foreign funding becomes more expensive.”

Scope’s report this year discusses a regional “fragile-4” in central & eastern Europe, Caucasus and central Asia of Georgia, Belarus, Armenia and Turkey alongside a 2021 Africa risky-3 of Zambia, Angola and Gabon. The riskiest three economies of Latin America are El Salvador, Argentina and Costa Rica, while a “resilient-3” in developing Asia is represented by China, India and Thailand.

Download the 2021 external vulnerabilities and resilience report and rankings (full report).

See video explainer: Scope updates its 2021 external vulnerabilities and resilience rankings.

Download 2021 external vulnerabilities and resilience report annexes (rankings and underlying data) in Excel.