Social inequality shapes political risk map

Pandemic-induced economic stress will continue to exacerbate global political risk throughout 2021 and amplify the threats facing already-fragile economies, according to a report by Marsh.

The Political Risk Map 2021, which is published by Marsh Specialty, shows larger increases than ever before in country economic risk across all regions globally. This is being driven by increases in deficit spending over the last 12 months, which is adding to sovereign and commercial credit risks in the less developed economies of the world.

The strains on public financing in emerging markets will result from increases in sovereign indebtedness and may create unfavourable conditions for domestic and foreign-owned businesses.

The findings mirror those in the World Economic Forum’s Global Risks Report 2021, which reported that the COVID-19 pandemic is increasing disparities between emerging economies and industrialised nations. It is also driving social fragmentation which, in the next 5-10 years, will weaken geopolitical stability.

According to this year’s report, social inequality is a pervasive risk across multiple regions – particularly in the Americas and Europe. In the future, inequality is likely to influence elections, contribute to political and economic nationalism, and could create conditions that spark open conflict.

As a result of the COVID-19 pandemic, many countries established or amended state-backed trade credit schemes to provide economic stability. While these programmes are currently supporting domestic trade and exports, critics argue they are keeping zombie companies – those with heavy debt burdens and low cash reserves – alive.

The Political Risk Map 2021 points to the risk of mass bankruptcies among zombie companies once these government-backed schemes expire.

Stephen Kay, global head of Political Risks, Marsh Specialty, commented: “As the world recovers from the effects of COVID-19, we expect the issues of social inequality, country economic risk, and strategic resource nationalism to take centre stage in influencing political decision making.

The Political Risk Map 2021 is based on data from Marsh Specialty’s World Risk Review platform. It rates 197 countries and territories across nine indicators relating to security, trading, and investments.