The 12 Countries Most Vulnerable to a Financial Crisis

by Business Insider | November 18, 2013 12:00 pm

The 12 Countries Most Vulnerable to a Financial Crisis

A new report from Wells Fargo’s Jay Bryson and Mackenzie Miller takes a look at developing economies and their potential exposure to a financial crisis.

Bryson and Miller rank the 28 largest developing economies based on economic indicators that are associated with financial crises: “Foreign exchange (FX) reserves, the real exchange rate, growth in credit, GDP growth, and the current account. That is, countries that have low FX reserves, an appreciated exchange rate, rapid credit and GDP growth, and current account deficits tend to have the highest probabilities for financial crises.”

Bryson and Miller stress that crises are not necessarily inevitable for these countries, but “developments in these economies bear watching in coming years.”

“It appears that the potential economic growth rate in the developing world has downshifted from the very robust rate that was achieved prior to the global financial crisis,” they write.

We took the 12 countries with the highest (most vulnerable) composite score.

12. South Africa

FX Reserves (% of nominal GDP): 23
Real Exchange Rate (% change from 2009): 14
Real GDP (% change from 2009): 4
Domestic Credit to Private Sector: 12
Current Account (% of GDP): 26

Total Score: 79

Comment: South Africa has a huge mining sector, and is the world’s largest producer of platinum, gold, and chromium.

Source: Wells Fargo, CIA Factbook[1]

11. Pakistan

FX Reserves (% of nominal GDP): 26
Real Exchange Rate (% change from 2009): 21
Real GDP (% change from 2009): 11
Domestic Credit to Private Sector: 8
Current Account (% of GDP): 15

Total Score: 81

Comment: With constant internal political disputes and tepid foreign investment, Pakistan has been stuck in a low-growth path, with growth averaging about 3% a year from 2008-2012.

Source: Wells Fargo, CIA Factbook[1]

10. Egypt

FX Reserves (% of nominal GDP): 27
Real Exchange Rate (% change from 2009): 22
Real GDP (% change from 2009): 5
Domestic Credit to Private Sector: 9
Current Account (% of GDP): 18

Total Score: 81

Comment: Since the uprising in Egypt started in January 2011, its tourism, manufacturing, and construction sectors have been hit hard.

Source: Wells Fargo, CIA Factbook[1]

See the rest of the story at Business Insider[2]

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Endnotes:
  1. CIA Factbook: https://www.cia.gov/library/publications/the-world-factbook/
  2. See the rest of the story at Business Insider: http://www.businessinsider.com/countries-most-vulnerable-to-crisis-2013-11?utm_source=investorplace&utm_medium=referral#9-mexico-4
  3. STOCK MARKET CRASH: Here Are 14 Warning Signs That The Bubble Will Burst: http://www.businessinsider.com/stock-market-crash-warning-signs-2013-11?utm_source=investorplace&utm_medium=referral
  4. The Emerging Market Warning Signs Are Flashing Again: http://www.businessinsider.com/the-emerging-market-warning-signs-are-flashing-again-2013-11?utm_source=investorplace&utm_medium=referral
  5. How Wall Street Sees The World In One Big Slide: http://www.businessinsider.com/heres-morgan-stanleys-take-on-the-entire-world-in-one-slide-2013-11?utm_source=investorplace&utm_medium=referral

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