EKN updates country risk class­i­fi­ca­tions for six countries

West Africa

Cape Verde

In the West African region, Cape Verde has been upgraded to country risk class 5. Cape Verde's economy was severely impacted by the pandemic but has rapidly recovered as tourism has resumed. Over the coming years, the economy is expected to grow by nearly five percent annually, with inflation dropping to two percent. While the country's high public debt remains a vulnerability, it is on a steady downward trend. Strong institutions, long maturities, relatively low interest costs, and external support from Portugal mitigate the risks to public finances.

Latin America and the Caribbean

Paraguay

Paraguay has been upgraded to country risk class 4. The upgrade is partly driven by robust economic growth of around three percent over the medium term, supported by efforts to diversify the economy. Paraguay remains a commodity-dependent country, exposed to droughts and global price fluctuations, which makes diversification crucial for strengthening resilience. Additionally, Paraguay's electricity supply is entirely renewable, attracting investment.

The country has shown resilience to external shocks in recent years, including droughts in 2019 and 2022 and the pandemic. Foreign reserves are relatively large, and forecasts estimate current account surpluses in the coming years, along with increased foreign direct investment. Furthermore, the floating exchange rate and predictable monetary policy serve as important anchors for macroeconomic stability.

That said, the country's credit-related weaknesses, including a high proportion of external debt denominated in foreign currency and a relatively weak governance indicators performance, are still reflected in the risk classification.

Costa Rica

Costa Rica has been upgraded to country risk class 3. Costa Rica has been an OECD member since 2021 and, with a GDP per capita of USD 16,400 and continued strong economic growth of over three percent annually, it is on track to be classified as a high-income country by the World Bank. The market is open to trade and diversified, with a well-developed services sector, tourism industry, and manufacturing base.

Costa Rica's institutions are ranked 65 out of 100 by the World Bank and 83 out of 100 in terms of political stability. The country has a floating exchange rate and an independent central bank serving. However, public debt and high government interest expenses remain vulnerabilities.

Costa Rica has made significant progress in reversing these trends, supported by a successful IMF program from 2021 to 2024 and a credit facility aimed at strengthening the country’s capacity to manage climate risks. This positive trend is expected to continue.

Jamaica

Jamaica has been upgraded to country risk class 5. The upgrade is the result of consistent improvements over the past decade in addressing the country's high public debt and associated interest expenses, which have historically weighed on its country risk class and external credit ratings.

Public and external debt have been on a clear downward trend, except for the pandemic year of 2020, and are expected to continue declining as the government pursues structural reforms. Furthermore, Jamaica's governance score is stronger than that of comparable economies.

However, Jamaica's remaining credit-related weaknesses, reflected in its country risk class 5, include still somewhat elevated debt levels, vulnerability to weather changes and natural disasters, and continued reliance on the tourism industry.

Aruba

Aruba has been upgraded to country risk class 4. Aruba was in country risk class 4 from 2006 until 2020, when it was downgraded due to the economic effects of the pandemic.

Tourists have now returned, and the economy has recovered well. Additionally, Aruba has successfully secured refinancing for pandemic-related liquidity loans from the Netherlands and has made significant progress in institutionalizing its fiscal framework, which has directly improved the budget balance, now showing a surplus. Aruba also benefits from a strong performance with respect to governance indicators. Moreover, the country lies outside the hurricane belt, making it more protected from natural disasters than many of its Caribbean neighbours.

Middle East

Israel

Israel has been downgraded to country risk class 2 (from 1). Apart from this, the country policy remains unchanged, meaning that EKN is open to all buyer categories in Israel without any specific restrictions.

The downgrade is motivated by increased risks associated with Israel's economic development as well as its public and external balances related to the ongoing conflict with Hezbollah in Lebanon. The shift in military activity from Gaza to Lebanon increases the likelihood of continued attacks on Israel from Iran and other actors in the region, extending well into at least 2025.

Despite the downgrade, several strengths in Israel's economy remain, including high income levels, multi-year current account surpluses, and foreign reserves amounting to more than 40 percent of the country’s GDP.