Moldova is the fifth in the world in terms of The Banker’s 2009 World Financial Health Index.
The financial crisis has rocked the globe and fundamentally changed the way we assess what makes a country successful.
The financial crisis of 2008 turned the world on its head, and the way The Banker looks at risk has also been turned upside down. In this brave new world, the world’s most developed economies – and those most dependent on credit – have suddenly become the ones most exposed to potential disaster. To find out who is most at risk, The Banker crunched all the available data to measure the financial and economic health of 184 countries. Statistics that until recently were used as a measure of economic performance – such as levels of bank lending – are now main indicators of the risk of financial problems.
The results, based on 25 indicators of financial and economic health, are shocking. According to The Banker’s new financial risk model, Moldova, Chile, Bolivia and Peru are less likely to be affected by the current financial crisis than the US, UK or Japan.
These countries may be poorer, but with a far lower reliance on credit and just a fraction of the leverage of developed markets, they are more insulated from financial meltdown than any developed country, according to our ranking.
The big surprise is Moldova, a small eastern European country with a gross domestic product (GDP) per capita of just $1830, ranks
fifth. Moldova has very low levels of debt ($763 per capita, compared with the UK’s $171,000 per capita), and its banks have high capital-to-asset ratios of more than 17% and low levels of lending.
According to the World Bank, banks in Moldova have extended loans worth just 35% of GDP, compared with the US, where domestic bank lending has reached 230% of GDP. Moldova pays just 2.8% of public sector revenues to service government debt but Italy, for example, spends 11.9% of government revenues on interest payments.
Including private sector borrowing, developed countries’ overall indebtedness relative to GDP rises to several times the levels of many developing countries. For example, Japan is a rich country with GDP per capita of just under $38,000, but banks in Japan
have extended domestic credit equal to a staggering 308% of GDP – far higher than any other country in the world. In the US, domestic bank lending has reached more than 230% of GDP, nearly four times the world average. According to World Bank indicators, Japan also has the highest level of government debt of any developed country, with public sector debt equal to 170% of GDP. Only Zimbabwe and Lebanon have higher levels, at 218% of GDP and 186%, respectively. Other highly leveraged countries in the ranking include Ireland and the UK. Ireland (ranked at 82) has the highest external debt-to-GDP ratio of any country at more than 600% of GDP, followed by the UK (ranked at 58 ) with external debt of more than 300% of GDP.
In addition to high levels of borrowing, many major economies are also sustaining large trade deficits and suffering from faltering economic growth, while many developing countries enjoy trade surpluses, continued economic growth and far lower levels of debt
relative to their annual GDP. Even though household incomes remain lower in developing countries, they can take comfort from the fact that they were not part of the post-millennium credit boom. Our ranking shows that, as a result, developing countries are now less highly leveraged relative to their wealth than rich countries and so less likely to suffer the consequences of a deep financial crisis.
The Banker, Published: 05 January, 2009