In 2007, the U.S. will remain the world's largest economy, but it has the greatest reliance on foreign savings compared with its export base. As ranked by nominal per capita GDP, the U.S. will drop out of the top-10 nations whose governments are rated by Standard & Poor's Ratings Services. The fastest-growing countries will be small nations with new energy projects coming on stream, many of the new members of the European Union (EU), and China. High commodity prices will account for most of the sovereigns that are outliers on measures of fiscal and external performance. Debt relief has helped some governments restore the stability of public finances, though others remain vulnerable. These are some of the conclusions that Standard & Poor's draws from its data and projections for the coming year.
The data set can be found on RatingsDirect in "
Sovereign Risk Indicators," which was published on Jan. 8, 2007, and which contains comparative statistics for rated sovereigns. (For official names and ratings, see "
Sovereign Ratings History Since 1975," RatingsDirect, Jan. 3, 2007. For a list of primary analysts of cited sovereigns, see Table 12.) These statistics include economic measures, fiscal indicators, balance-of-payments information, and external balance-sheet figures. Median calculations by rating category can be found in "
Sovereign Risk Indicators: Medians By Rating Category," published on RatingsDirect on Jan. 3, 2007. Data are drawn from national and other reputed sources, such as the IMF. Estimates and forecasts are prepared by Standard & Poor's sovereign analysts. Standard & Poor's first published "Sovereign Risk Indicators" in April 1985 and has since done so semiannually.
Sheer size is not a rating factor for sovereigns (see "
Criteria: Sovereign Credit Ratings: A Primer," RatingsDirect, Oct. 19, 2006), but it is an indication of economic clout and thus systemic importance. If a large economy falters, as Japan faltered for most of the 1990s through 2002, it has spillover effects greater than those coming from small economy crises. In 2007 and for many years to come, the U.S. will remain the largest economy, with one quarter of world's GDP—larger in nominal terms than the combined economies of the next four runners up: Japan, Germany, China, and the U.K. (see Table 1).
Standard & Poor's expects the rank ordering of the top 10 largest economies to remain stable, with only Spain surpassing Canada to take the eighth spot. This was because of the latter's weaker growth, resulting from softer housing demand, lower commodity prices, and weaker net exports. Russia has been the current decade's star achiever, moving up to 10th place from 18th place in 2000. The reason for the climb is that rising energy and commodity prices helped spur domestic consumption and investment as well as a real appreciation of the ruble, which boosted the dollar-income per capita, engendering a consolidation of public finances after the 1998 GKO default.
Standard & Poor's rankings by size of small rated sovereigns have also remained broadly stable over the decade. Most of the smaller sovereigns are newly rated, as these governments seek ratings to improve access to external commercial financing either for themselves or for their larger private sector borrowers (see "
Credit FAQ: The Future of Sovereign Ratings," RatingsDirect, Sept. 5, 2006).
Standard & Poor's expects Denmark to surpass Switzerland in terms of per capita GDP (see Table 2) on the back of better labor productivity growth. At the same time, the U.S. will likely fall out of the top-10 rated sovereigns ranked by per capita GDP, as we expect growth to slow and the value of the dollar to weaken against almost all major trading currencies. Sweden will claim the 10th spot. Among the rated sovereigns with the lowest per capita GDP, most participated in the Highly Indebted Poor Country (HIPC) Initiative. The three that did not were India, Nigeria, and Vietnam. All three will end the year with less than US$900 per capita GDP, one-50th the level of the 11th-ranked U.S. Their recent growth performances have been impressive but have come off of low bases, and their pressing social needs are sometimes obscured by otherwise favorable economic indicators.
Table 2
GDP Per Capita
2000
2006
2007
Country
Rating*
(US$)
Rank
(US$)
Rank
(US$)
Rank
Liechtenstein
AAA
75,520
1
104,929
1
113,323
1
Luxembourg
AAA
45,446
3
87,706
2
99,558
2
Bermuda
AA
56,805
2
80,320
3
84,873
3
Norway
AAA
37,338
5
68,811
4
74,831
4
Qatar
A+
28,786
10
61,558
5
65,450
5
Ireland
AAA
25,446
12
50,768
6
57,012
6
Denmark
AAA
30,035
9
50,222
8
56,527
7
Switzerland
AAA
34,247
7
50,454
7
54,275
8
Iceland
A+
30,556
8
50,023
9
51,772
9
Sweden
AAA
27,283
11
41,121
11
47,734
10
India
BB+
453
102
798
104
898
104
Nigeria
BB-
315
107
804
103
842
105
Vietnam
BB
397
105
715
106
786
106
Benin
B
367
106
621
108
722
107
Kenya
B+
414
103
666
107
686
108
Ghana
B+
251
108
542
109
602
109
Burkina Faso
B
207
111
444
110
517
110
Mali
B
224
109
427
111
499
111
Mozambique
B
214
110
346
112
380
112
Madagascar
B
183
112
284
113
322
113
*Long-term foreign currency rating.
Apart from countries coming from a low base, Standard & Poor's forecasts that the fastest-growing economies in 2007 will be the resource-rich nations that have large new production facilities coming on line (Qatar and Kazakhstan with oil and gas and Bahrain with aluminum), the new members of the EU that have progressed furthest in liberalizing their domestic markets and in gaining export market share (Estonia, Latvia and the Slovak Republic), and China (see Table 3). Apart from Iceland, which has enjoyed high investment-driven growth in recent years, Standard & Poor's does not expect any rated sovereign to see its economy contract in 2007.
Table 3
Real GDP
2000
2006
2007
Country
Rating*
(% Change)
Rank
(% Change)
Rank
(% Change)
Rank
Qatar
A+
9.1
7
5.4
47
9.9
1
China
A
7.6
17
10.5
5
9.5
2
Latvia
A-
6.9
21
11.0
3
8.9
3
Kazakhstan
BBB
9.6
4
10.6
4
8.6
4
India
BB+
4.4
55
8.5
7
8.0
5
Vietnam
BB
7.1
20
7.5
14
7.5
6
Estonia
A
7.9
15
11.0
2
7.5
6
Slovak Republic
A
0.7
102
7.5
14
7.2
8
Bahrain
A
5.2
38
7.2
18
7.0
9
Lithuania
A
4.1
61
7.9
10
7.0
9
Japan
AA-
2.4
92
2.7
98
2.1
104
Malta
A
6.4
23
2.3
104
2.1
105
Norway
AAA
3.0
83
2.1
109
2.0
106
France
AAA
4.1
62
2.3
105
1.9
107
Switzerland
AAA
2.7
89
2.9
93
1.9
107
New Zealand
AA+
5.3
36
2.2
108
1.9
107
Germany
AAA
3.2
81
2.5
104
1.8
110
Portugal
AA-
3.4
77
1.0
112
1.2
111
Italy
A+
3.6
73
1.8
111
1.2
112
Iceland
A+
5.7
32
4.6
62
(0.3)
113
*Long-term foreign currency rating.
Fiscal outturns in 2007 will follow the pattern set down during the last two years (see Table 4). Oil and other commodity-producing nations that have strong fiscal rules in place will post large surpluses. Singapore will also post a large (5% of GDP) fiscal surplus in 2007. Although it is not a commodity producer, it has a strong fiscal rule: The 1998 Constitution requires the government to seek the president's approval if it seeks to draw down fiscal assets to fund a deficit. Such permission has never been sought.
Table 4
Fiscal Surplus Or Deficit/GDP (%)
2000
2006
2007
Country
Rating*
(%)
Rank
(%)
Rank
(%)
Rank
Kuwait
A+
44.0
1
41.0
1
38.2
1
Norway
AAA
15.6
2
16.7
3
16.2
2
Oman
A-
8.9
6
19.2
2
15.1
3
Nigeria
BB-
2.2
23
13.7
5
14.6
4
Saudi Arabia
A+
6.0
11
15.0
4
10.6
5
Seychelles
B
(13.8)
108
4.3
12
9.9
6
Qatar
A+
7.2
7
10.0
6
8.6
7
Chile
A
(0.7)
42
7.8
7
6.7
8
Russia
BBB+
3.1
18
7.0
8
5.6
9
Singapore
AAA
9.7
4
3.0
17
5.0
10
Madagascar
B
(3.3)
72
(4.3)
105
(4.3)
104
Burkina Faso
B
(3.9)
80
(4.2)
103
(4.6)
105
Japan
AA-
(6.7)
101
(4.9)
107
(4.8)
106
Vietnam
BB
(5.2)
95
(5.6)
108
(4.9)
107
Senegal
B+
0.1
34
(4.0)
102
(5.6)
108
India
BB+
(9.6)
106
(6.9)
109
(6.6)
109
Hungary
BBB+
(3.0)
70
(9.8)
112
(6.8)
110
Sri Lanka
B+
(9.5)
105
(7.0)
110
(7.1)
111
Egypt
BB+
(1.2)
48
(8.0)
111
(7.5)
112
Lebanon
B-
(22.4)
109
(14.4)
113
(13.8)
113
*Long-term foreign currency rating.
Among the sovereigns that will post the highest fiscal deficits in 2007, the story is mixed. Standard & Poor's projects that Hungary will most improve its fiscal outturn of all the sovereigns we rate, equivalent to 3% of GDP. Vietnam, Egypt, India, and Japan (in descending order of improvement) will likely achieve modest fiscal consolidation compared with 2006. On the other hand, we project that Burkina Faso and Senegal will see their fiscal accounts continue to deteriorate. War-torn Lebanon and Sri Lanka are unlikely to reduce their large general government deficits significantly.
Standard & Poor's 2007 rankings for net general government debt to GDP align in a similar fashion (see Table 5). The top-10 ranked sovereigns are all substantial net fiscal creditors. The list includes all five of the rated Gulf States; the prosperous, small, and culturally homogenous European states (Liechtenstein, Luxembourg, and the Isle of Man); plus Norway and Singapore. This list has been stable this decade, with all of the current top 10 continuing to be net creditors since 2000. On the other hand, there have been some noteworthy changes among the most indebted governments. This decade saw Grenada's government debt burden rise dramatically. It defaulted in 2004. (Belize's debt rose in a similar fashion. Ranked 11th on this list in 2007, it defaulted in December 2006.) Seychelles and Belgium (at either end of Standard & Poor's rating spectrum) have been able to lower their debt burden markedly since the turn of the millennium. Italy appears to be treading water. Jamaica, which saw its debt rise substantially following a banking crisis in 2000, has been able to reduce its debt burden steadily since 2003 because of high primary fiscal surpluses and a real appreciation of the Jamaican dollar. Although Japan's net government debt burden has risen markedly this decade, Standard & Poor's expects it to crest in 2010 and slowly decline thereafter. Lebanon remains the most indebted rated sovereign and has been near the top since 2000.
