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Geopolitical Turmoil and Sovereign Credit Rating

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The level at which geopolitical turmoil has risen over the years presents rising risks for global credit rating. Since sovereign credit rating is an assessment of the country’s creditworthiness including all associated risks, geographical turmoil is definitely an inclusive risk that should be put into consideration.

Increased geopolitical disintegration, particularly related to events and happenings around the globe, poses great credit risks.  Some of such recent disturbing trends include; wars, terrorist attacks, unrelenting kidnapping, general insecurity and political instability.

Geopolitics deals with politics that are influenced by geographic factors, such as the location of countries as compared to one another and a particular region. Geopolitical turmoil is a term used more in current situations to describe tense political relations or events that are occurring in a particular part of the world, often being influenced by countries outside the region. It is not constrained to solely politics but also covers economics influenced by geographical factors.

Geopolitics has a high tendency to disrupt economic, financial, institutional and political stability and subsequently affect credit.

Credit risks are rising in several key areas as a result of increased fragmentation, including trade disruption, security coordination, cross-border financial issues, climate change policy and migration patterns.

Geopolitical risk is a top concern in the world and its drivers are converged at different levels – national, regional and global. The global level threatens to overwhelm existing institutions and engages a wider range of stakeholders.

In Nigeria, the cost of insurgency in the northern region and unknown gunmen in the eastern part of the country, are all contributing to worsening the economic condition of the country.

Insecurity affects economic growth by drying-out investments, increasing unemployment, food shortages and dwindling government revenue, all contributing to the inability of the government to meet its obligations.

Source: DATA PRO

 

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