This commentary serves to highlight the key quantitative features and trends of Standard & Poor's 2007 statistical forecasts for the 21 sovereigns rated in the Asia-Pacific region. A commentary on global sovereign rankings, titled "
Sovereign Risk Indicators: 2007 Outliers", was also published on Jan. 17, 2007, on RatingsDirect. In addition, a wider selection of economic indicators can be consulted in a report titled "
Sovereign Risk Indicators", published on Jan. 8, 2007, which contains global comparative statistics for all sovereigns rated by Standard & Poor's. The "Sovereign Risk Indicators" report is published semi-annually in January and July.
In 2007, Japan will remain the largest economy in the region, although China is fast catching up (see table 1). Globally, China has overtaken the U.K. and France to be the 4th largest economy (see "Sovereign Risk Indicators: 2007 Outliers"). If China's phenomenal growth continues, it could leapfrog Japan to be the biggest economy in Asia-Pacific and the second-largest globally (behind the US) within a decade.
In terms of GDP per capita, Standard & Poor's expects Japan, Australia, and Singapore to lead the pack with Hong Kong dropping out of the top three (see table 2). In Hong Kong's case, the drop is mainly due to the effect of the Hong Kong dollar being pegged to the depreciating US dollar. This foreign exchange effect is even more evident in the global rankings. Asia's per capita wealth appears to have taken a dent with no Asian representative in the global top 20. European sovereigns have surged up the rankings on the back of the stunning performance of the Euro, while for the first time Japan has dropped out of the top 20 on a weakened Yen.
As expected, China will be the fastest-growing country in 2007 in Asia-Pacific, followed by Kazakhstan and India (see table 3). Standard & Poor's expects that growth dynamics will remain robust, with a regional (unweighted) average growth rate of 5.3%, compared to 5.6% in 2006. This is still short of the 2000 record of 6.1%, although 2000 was an exceptional year in which many Asian economies recovered from the lows of the Asian financial crisis. Taking the 3-year average of 1999-2001, regional growth was a more modest 4.4%, while a stronger average growth of 5.4% is estimated for 2005-2007.
A credit boom often plays a vital role in many countries' growth experience. On average, domestic credit in Asia-Pacific rose to 86.7% of GDP in 2006, from 77.2% in 2000 (see table 14). This ratio is expected to climb further to 88.5% in 2007. Japan tops the regional domestic credit rankings while the extraordinary credit growth in Australia and New Zealand sees the two Pacific nations ranked 2nd and 3rd respectively. Driven by a property boom and increased consumer spending, Australia's and New Zealand's domestic credit has increased by about 40% of GDP from 2000. This has been accompanied by a sustained period of comparatively strong real growth in these economies over the period. However, slowing real growth, accompanied by moderate activity in the housing markets in Australia and New Zealand, is expected to lead to more modest growth in credit in 2007.
On the fiscal front, Singapore tops the regional rankings with a fiscal surplus of 5% of GDP expected in 2007 (see table 5). On a global basis, Singapore's fiscal prudence is further accentuated by being the only non-oil or commodity-producing nation in the top 10 global rankings, a league dominated by oil-rich Middle-Eastern states. Oil and gas exporter Kazakhstan is another notable performer in Asia-Pacific. Unsurprisingly, both countries are in the top three largest net creditors in the region along with Hong Kong (see table 6). On the other end of the spectrum, Japan remains the biggest net debtor regionally, and ranks third globally. In Asia-Pacific, Japan alone accounts for approximately 78% of the region's total gross debt stock (see "
Sovereign Issuance Outlook: Asia-Pacific Borrowing Likely To Decline 2.8% In 2006", RatingsDirect, Feb. 5, 2006. An update of this Sovereign Issuance Outlook report will be published on Jan. 26, 2007). Although Japan's net government debt has risen substantially this decade, Standard & Poor's expects it to peak in 2010 and slowly decline thereafter on the back of fiscal consolidation.
In terms of public debt burdens, Philippines and Sri Lanka top the rankings as measured by interest expenditure as a share of government revenue (see table 12). Interest expenses will account for almost a third of the Philippines' government revenue in 2007, although Standard & Poor's is expecting the public debt burden to dwindle with fiscal improvements and the availability of refinancing at lower interest rates.
Another noteworthy indicator of a sovereign's credit risk is the potential contingent liabilities arising from its financial sector. Countries with large financial sectors and high levels of problematic loans would naturally have the greatest contingent fiscal risks. China, Vietnam, and Taiwan top the Asia-Pacific rankings (see table 4). In addition, Asian governments account for half of the top-10 globally ranked sovereigns with the highest contingent liabilities. This high concentration is due to the region's high levels of bank intermediation coupled with vulnerable asset quality. China and Vietnam, being socialist economies, have financial sectors that are dominated by state-owned commercial banks, which are often inefficient and unprofitable. Standard & Poor's estimation of China's contingent liabilities, however, has reduced markedly in recent years with ongoing structural reforms in its financial sector (although it should be noted that the estimations of China's and Vietnam's contingent liabilities err on the conservative side due to disclosure issues in their banking sectors).
On the external front, around 60% of countries in Asia Pacific run current account surpluses, reflecting the export-oriented nature of most economies in the region (see table 7). The remainder, in particular New Zealand and Australia, continue to have persistently high current account deficits that expose them to the risk of a sudden downturn in investor confidence or rapid declines in their currencies. There is also a declining trend in external public sector debt levels across the region (see table 10). This regional trend is not unlike the global trend whereby governments are relying less on external funding and are increasing funding from domestic debt markets. In Asia Pacific, much of the public external debt (such as in Pakistan, Sri Lanka, and Mongolia) is made up of concessional, multi-bilateral loans with low servicing costs. In addition, recent US and Russian debt forgiveness has dramatically reduced the external public debt levels of Pakistan and Mongolia respectively.
Table 1
Sovereign Risk Indicators
Nominal GDP (Bil. US$)
Country*
Long-term foreign currency rating
2007
Rank
2006
Rank
2000
Rank
Japan
AA-
4,587.7
1
4,426.8
1
4,745.9
1
China
A
3,085.0
2
2,635.5
2
1,198.3
2
India
BB+
1,026.0
3
897.0
3
461.3
4
Korea
A
881.0
4
860.3
4
511.7
3
Australia
AAA
746.3
5
717.9
5
403.2
5
Indonesia
BB-
371.8
6
330.8
7
158.6
8
Taiwan
AA-
366.8
7
351.2
6
321.1
6
Thailand
BBB+
216.8
8
194.3
8
122.7
9
Hong Kong
AA
200.5
9
188.7
9
168.8
7
Malaysia
A-
154.1
10
142.1
10
90.3
11
Pakistan
B+
145.5
11
126.9
11
73.3
13
Singapore
AAA
136.7
12
125.6
12
92.9
10
Philippines
BB-
130.5
13
118.0
13
75.9
12
New Zealand
AA+
106.8
14
104.9
14
57.4
14
Kazakhstan
BBB
89.0
15
72.4
15
18.3
16
Vietnam
BB
67.1
16
60.2
16
31.2
15
Sri Lanka
B+
28.9
17
26.5
17
16.3
17
Papua New Guinea
B
5.6
18
5.2
18
3.5
18
Mongolia
B+
2.7
19
2.4
20
1.0
20
Fiji
B+
2.7
20
2.5
19
1.5
19
Cook Islands
BB-
0.2
21
0.2
21
0.1
21
*Click on the country name to see full ratings details and previously published research.
