Fathom’s Financial Vulnerability Indicator (FVI) allows our clients to systematically forecast the probability that a country may experience each of four different types of crisis: banking, currency, sovereign or sudden-stop. It covers 177 countries and combines both high and low frequency economic and financial market data. In addition, Fathom also provides Refinitiv clients with an aggregate, composite FVI measure for each country, which weights these four different crisis types and is available through the Chartbook on DataStream.
The charts below show this composite measure for the Ukraine and Sri Lanka, two economies that have been flagging on our radar for months and making headlines more recently, albeit for very different reasons.
In Ukraine, comedian Volodymyr Zelensky romped to victory over incumbent Petro Poroshenko last week. Whilst it remains unclear exactly what Mr Zelensky’s position is on a number of key policies, his election can be seen as a rebuke to the establishment by an electorate that is tired of corruption and is seeking higher living standards. After a number of challenging years, the wind of political change in Ukraine has also found fertile ground in improving economic conditions and stabilising financial risks, which are highlighted by our FVI. In particular, falling government debt as a percentage of GDP and growing reserves have contributed to a drop in the risk of sovereign default, a point reflected in our Sovereign FVI. The risk of a banking crisis (measured by Fathom’s Banking FVI) has also dropped significantly too. Overall, Ukraine financial risk remains elevated, but it has been on a steadily improving trajectory for several years, as reflected by the composite FVI.
Meanwhile, Sri Lanka has made headlines for all the wrong reasons recently. The country, however, had been flagging on the FVI well before the recent terrorist attacks. Among our universe of 177 countries, it has experienced some of the most significant increases in sovereign risk since the middle of last year. The time line in the chart below shows how our FVI measure has been significantly ahead of rating agencies in flagging these risks.
Even before the recent terrorist attacks, political turmoil and weak economic fundamentals have plagued the country. Weak growth has been a feature of the past few years due to ill-thought-out and mismanaged policies serving the political agendas of short-lived and unstable governments. Lower growth has also gone hand in hand with soaring debt costs which were expected to hit record levels in 2018. The debt trajectory has also been made worse in part by large scale infrastructure programmes, sponsored through the Belt and Road initiative with China, that have saddled the country with debt without adding much to economic capacity.
Casting our eyes back to 2017, Sri Lanka was flagged as a low-risk economy according to our composite FVI measure. Recent developments are a timely reminder of how quickly economic conditions can deteriorate and how valuable a well calibrated compass such as the FVI is in helping to navigate such budding risks. For more information about a complete range of FVI-related services , please contact Fathom Consulting. The composite measure can be accessed by Refinitiv clients through the Chartbook on Datastream.
The charts in this article have been created using Chartbook on Datastream. The Chartbook was initially created by Fathom Consulting in 2012 and is now a catalogue of approximately 9000 charts, covering over 170 countries, analysing up-to-date macro and financial data. Whether it is a particular topic, country or variable you are interested in charting, the Chartbook has everything you need. To access Chartbook via Datastream search ‘cbook’.
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