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
REUTERS/Siphiwe Sibeko
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
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
10. Egypt
AP Photo/Khalil Hamra
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
9. Mexico
Brandon Wade/Getty Images
FX Reserves (% of nominal GDP): 18
Real Exchange Rate (% change from 2009): 13
Real GDP (% change from 2009): 14
Domestic Credit to Private Sector: 21
Current Account (% of GDP): 16
Total Score: 82
Comment: President Enrique Pena Nieto has made structural economic reform and boosting competitiveness the hallmarks of the new PRI government.
Source: Wells Fargo, CIA Factbook
8. India
REUTERS/Anindito Mukherjee
FX Reserves (% of nominal GDP): 15
Real Exchange Rate (% change from 2009): 6
Real GDP (% change from 2009): 23
Domestic Credit to Private Sector: 18
Current Account (% of GDP): 23
Total Score: 85
Comment: Food inflation has dogged India this year, with the cost of onions — a staple food in the country — exploding by 322%.
Source: Wells Fargo, CIA Factbook
7. Chile
Shutterstock / gary yim
FX Reserves (% of nominal GDP): 14
Real Exchange Rate (% change from 2009): 19
Real GDP (% change from 2009): 17
Domestic Credit to Private Sector: 15
Current Account (% of GDP): 24
Total Score: 89
Comment: Commodities make up roughly three-quarters of total Chilean exports. And exports account for approximately a third of GDP.
Source: Wells Fargo, CIA Factbook
6. Peru
FX Reserves (% of nominal GDP): 6
Real Exchange Rate (% change from 2009): 20
Real GDP (% change from 2009): 25
Domestic Credit to Private Sector: 16
Current Account (% of GDP): 25
Total Score: 92
Comment: Peru's economy — helped out by its mineral resources — has been growing by an average 6.4% a year since 2002.
Source: Wells Fargo, CIA Factbook
5. Brazil
REUTERS/Kai Pfaffenbach
FX Reserves (% of nominal GDP): 13
Real Exchange Rate (% change from 2009): 23
Real GDP (% change from 2009): 12
Domestic Credit to Private Sector: 27
Current Account (% of GDP): 21
Total Score: 96
Comment: Large agriculture, mining, manufacturing, and service sectors make Brazil South America's meatiest economy.
Source: Wells Fargo, CIA Factbook
4. Turkey
AP
FX Reserves (% of nominal GDP): 20
Real Exchange Rate (% change from 2009): 4
Real GDP (% change from 2009): 22
Domestic Credit to Private Sector: 26
Current Account (% of GDP): 28
Total Score: 100
Comment: Turkey's industrial and service sectors are increasingly driving its economy, though agriculture still makes up 25% of employment.
Source: Wells Fargo, CIA Factbook
3. Indonesia
FX Reserves (% of nominal GDP): 21
Real Exchange Rate (% change from 2009): 17
Real GDP (% change from 2009): 20
Domestic Credit to Private Sector: 24
Current Account (% of GDP): 22
Total Score: 104
Comment: Indonesia has gone under many financial reforms in the past few years, and joined China and India as the only G20 members to grow in 2009. Still, the country is beset with poverty, unemployment, corruption, and poor infrastructure.
Source: Wells Fargo, CIA Factbook
2. Argentina
FX Reserves (% of nominal GDP): 25
Real Exchange Rate (% change from 2009): 27
Real GDP (% change from 2009): 21
Domestic Credit to Private Sector: 22
Current Account (% of GDP): 14
Total Score: 109
Comment: Argentina has seen recurring financial crises in the last few decades despite its rich natural resource base and large industrial economy.
Source: Wells Fargo, CIA Factbook
1. Colombia
AP
FX Reserves (% of nominal GDP): 24
Real Exchange Rate (% change from 2009): 25
Real GDP (% change from 2009): 16
Domestic Credit to Private Sector: 25
Current Account (% of GDP): 20
Total Score: 110
Comment: Colombia's economy, while increasingly diversified, still relies heavily on oil exports, making it vulnerable to shocks in oil prices.
Source: Wells Fargo, CIA Factbook
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