Which country is most likely to have the next financial crisis?

Sorry people, but Ukraine and Venezuela and Argentina are not eligible for this designation, any more than you can give “Most Likely to Succeed” to LeBron James.  Have I mentioned lately that emerging market corporate debt doubled over the course of 2012-2014?  But where exactly is the pot most likely to boil over next?

Here are a few contenders:

1. Brazil

The currency declined nine percent last month, prompting reactions such as:

“It is incredible to see how dauntingly fast things are deteriorating,” Enestor dos Santos, an economist at BBVA, said from Madrid. “It’s been hard to nail down a projection.”

According to some polls, seventy percent of the population favors the impeachment of President Rousseff; political dysfunction adds to the brew and the various scandals only seem to be growing worse.  Moody’s has downgraded the country to Baa3, right on the margin of junk.  The economy is expected to contract 1.7 percent this year and the current account deficit is coming in higher than forecast.  Financial crises are a tradition.

2. Turkey

The country is headed for snap elections, in light of ongoing political instability, while fighting a two-front war and it has a growing current account deficit.  Hmm…

That said, the economy grew at 2.4 percent last year, exports are relatively diversified, and I suspect the current dire situation will prove manageable.  The Greek and Turkish ten-year yields are now about the same (which country should be happy with that comparison?).  On the down side, the country is especially dependent on short-term financing, which can prove volatile.

3. Russia

What’s to like?

The Russian economy shrank by 4.6 percent in the quarter ending June. Although the media has focused on the stability in Moscow and maybe St. Petersburg, the economic decline in Russian provinces has been much more serious.

Debt in Russia’s 83 regions has risen by 100 to 150 percent since 2010. Russia’s economic minister suggested that possibly 60 of those 83 regions are in crisis mode, and 20 may have already been defaulting on their debt.

The economy still hasn’t recovered from the 2008-2009 crisis, and it doesn’t seem the price of oil will be bouncing back anytime soon.

A few days ago Ivan Krastev wrote: “The Kremlin is populated not by mere survivors of the post-Soviet transition but by survivalists, people who think in terms of worst-case scenarios, who believe that the next disaster is just around the corner, who thrive on crises, who are addicted to extraordinary situations and no-rules politics.”

On the bright side, they have $541 billion in reserves.  I say that’s overrated when everything else is turning sour.

4. Belarus

The economy shrank 3.3 percent in the first half of this year, and the government responded by increasing borrowing.  For further information, see Russia.

5. Greece

They are hanging on, and the freeing up of previously held government payments will deliver the economy a decent burst of stimulus.  Still, they are one EU spat, or one coalitional collapse, away from being back in the doghouse with closed banks, Grexit, higher austerity, and plummeting exports.  That said, the Not Very Serious People turned out to be the Not Very Serious Person and things are looking much better than they did a few weeks ago.  Even the Finns are on board with the bailout.  Staying in the euro may not be good for Greece in the longer run, but for now it means they are unlikely to win this particular tournament.

6. China

For all the current problems, I still don’t think they are next in line.  Their production is crashing, but that’s not the same as a financial crisis.  They don’t seem to have their debt distributed “in just that right way.”  The $3.6 trillion in foreign exchange reserves — down from $4 trillion I might add — doesn’t hurt either.  Still, this year China is on the list of nominees, and for the first time.

The bottom line: I’ve got to go with Russia and Belarus.  Runner-up is Brazil.

Honorable mentions include Indonesia, Jamaica, and Belize (decent growth but a widening current account deficit). The dark horse pick?  Colombia, with a peso down 36 percent against the dollar in the last year and a heavy dependence on oil exports.  Alternatively, Malaysia.  Thailand isn’t doing well, but it seems like more of a slow burn.  South Africans are economically miserable, but the country does not really fit the financial crisis profile.

Here is my discussion from 2014, Ukraine ended up as the exemplar.  The sad thing is that this year’s post is longer than last year’s.


I thought Turkey, too, but Tyler's already mentioned it.
"The economy still hasn’t recovered from the 2008-2009 crisis"
-Yeah it has! Both in terms of the unemployment rate and RGDP per capita!
Also, Russia's already in a financial crisis. Real estate is rapidly falling in price, even in ruble terms! And Russia's recession had its trough in April:
BTW, if Belarus's economy contracts this calendar year, it would be the first time it would do so since the 1990s. Not surprising, given the post-2011 slowdown, but still notable.

My guess: Moldova. Cheap shot, but a good one.

In the past 15 years, there hasn't been a single year when they haven't predicted Russia's impending crash. I almost think there might be some wishful thinking there.

Incidentally, Krastev's Stalin Index is 1. That is, in his piece he mentions Stalin in the very first paragraph. 99% of articles on the modern Russian issues where Stalin Index < 10 are not worth reading.

Who's they? Just a few years ago Russia was part of the BRICS and every article I read in a newspaper talked about how great the country was doing.

I do like your Stalin index, though.

Adding to that, I checked the ruble again yesterday and it appears to be tanking again--near its ten-year low vs dollar.

Also, see Tyler's previous post on oil price. No good for little daddy Putin.

Zero surprise, but it's not going to lead to the recession August-April was, unless it's exacerbated by tight money.

Can we have a definition of "financial crisis" please? Or does a 10% fall vs USD count as a crisis then?

an all time low, but who's counting

It must be August....

I'll go with the Philippines, which has a presidential election in 2016. Since economics is random (with a non-random bias, usually upwards) this makes as good a prediction as anybody else's. For example, if oil recovers in price, so do the oil-exporting countries.

Wow, even Colombia made it to the list.
I am surprised nobody is talking about Canada though.The dollar has shrunk by 25%, the oil sands are all but stopped, the bank of Canada has little recourse to raise the interest rate after the Americans raise theirs in the coming months, housing is overvalued by 20% or more and it is an election year.
Yet no one is talking about this perfect storm, not even in Canada.
I do not think the next year will be a good one for us canadians.

Ok, I'll play devils advocate: Almost all currencies have shrunk against the dollar. ..I'm not sure why the BoC would need to follow the Americans in raising interest rates anyway...Whats the impact of an election year? More spending?... And as for housing prices, I agree they seem absurd, but we've also been hearing that for the past 7 years now.

My bigger worry is that with the falling loonie there is already an incentive to take money out of the country, and then once the Americans increase their interest rate even more capital will follow in search for higher returns. Canadians are extremely risk averse and the more money they take out of Canada the larger the savings to borrowing imbalance.

Most of Canada's borrowing is in Canadian dollars and the Federal deficit is non-existent. The housing market risk is spread between the owners, the banks and the Federal government. Even an average thirty percent drop in house prices would not be enough to put the economy into a financial crisis - although it would be extremely unpleasant.

The dollar has fallen because the price of oil has fallen. The drop is a boon for exporters like the lumber industry.

The biggest risk in Canada is that we elect either an NDP government or an NDP/Liberal coalition. The 1972/1974 NDP/Liberal coalition government was the most willfully incompetent Federal government in my lifetime. If we get an NDP or minority government in the October election I am moving a couple of hundred thousand dollars of cash out of Canada within days of the election. But even an NDP election won't trigger a financial crisis - just a sugar high followed by long term under-performance.

Hold on a moment jorgensen. Your interpretation of 1972/74 is out of whack with reality. I live in Canada and managed quite well. What you are really saying is that you didn't like the National Energy Program and my guess is you are a heavy investor in the Alberta tar sands. Now there is a story to get into, eh? As for your political advice/threat lets just say 'go ahead'. Leave.

A few years ago I was with a reasonably sized crowd predicting an imminent Australian recession. Unsustainable mining prices, evidence of Dutch Disease, a stock market saturated by the financial sector and increased speculation in the housing market were spelling a looming disaster on the cards.

But it would seem, at least for now, that things are reasonably stable, despite the iron ore price near halving, and the increasing house prices (particularly in Sydney and Melbourne) steering first-home buyers away from the market.
The housing market especially in Sydney has continued to be sustained by plenty of overseas buyers, particularly from China. You'd suspect that given conditions in China, that this inflow to Australia will continue into the near future. Whether it will ever end, I wonder - with a population in the billions there are more than a few in China with the cash to pony up for an Australian property investment/residence.

Australia`s sensible immigration policy means it will be prosperous far into the future.

There are some serious concerns but I don't think that they are widespread enough to cause a collapse. Alberta needed a mucking out, and they will find that the unlimited pot of gold has a limit after all. The dollar has softened the blow a bit, tourism is up, Alberta not sucking up all the skilled people keeping a lid on labor prices. I think the big one to watch is Ontario, an almost New York State type of imbalance between Toronto and everywhere else. Even real estate is localized with the madness in Vancouver and Toronto, probably will continue as Chinese bailout money is used to build an escape nest egg. That 3. something trillion buys alot of overpriced real estate.

As for the election the NDP supporters can taste it, but usually the NDP win big by surprise. I suspect it will be a nail biter ending up giving Harper the option to retire when he wants.

Canada may have some economic problems, but chances of a financial crisis are very low. Canadian banks are among the safest in the world. It has a low debt to GDP ration compared to its peers, and if needed can continue to provide existing services despite a temporary fall off in revenue. As a commodity based economy, Canada has gone through these turbulations before.

Whatever problems Canada may have to its economy, it won't see draconian cuts in its services, require an IMF bailout, mass unemployment like in Greece or Spain, or utter collapse of its currency. There's a difference between economic recession and financial crisis.

Ecuador. Look at fiscal situation + behavior of deposits.

Ecuador vs neighboring Colombia is an interesting comparison. Both are oil dependent -- Colombia has devalued, but Ecuador can't (due to dollarization).

"Ukraine and Venezuela and Argentina"
-Heh. They all have four syllables and end in "a".

Are you spelling Ukraine as the they spell it themselves? Why? We call every other country by its American name.

Do you also call Russia Rossiya, or Japan Nihon?

Well , calling Japan as Japan seems pretty bad. May be we should get around to calling countries what they would like to call themselves.


This needs to be in their constitution. Why are they wasting time with robots and buying bonds?

Russia's at least close to "Rosseeya". I always call Krim Krim. I don't particularly care how I call Japan. I sometimes call Korea "Choseon".

The Choseon ones.

Venezuela has 5 syllables

Ve-ne-zue-la. Nope, four.

I think you're actually correct here, but I have heard it pronounced Ve-ne-zu-e-la

From the Spanish Wikipedia, it looks like four:

"Seven decades on, Stalin’s current heir, Vladimir V. Putin"

-Yes, and Michelle Bachelet is Pinochet's current heir.

"In fact, breaking the rules without being punished is the Kremlin’s peculiar definition of being a great power."

-Hm. North Korea, Israel, Eritrea, China, Turkey, and the United States are not all in the same league.

"a lack of vision for its impending post-Putin existence"

-Ding! We have a winner.

"But while Mr. Putin may be a czar, Russia is no monarchy. His daughters will not succeed him in the Kremlin. Mr. Putin is a popularly elected president whose political system has destroyed the legitimacy of elections as an instrument for the peaceful change of power."

-Dude, rule by incumbency (and, thus, the destruction of the legitimacy of elections as an instrument for the peaceful change of power) is hardly unheard of in the United States. Ever heard of John Conyers? Charlie Rangel? Chuck Grassley? FDR?

"His United Russia party is a valuable instrument for winning rigged elections,"

-Russian elections are no more rigged than many in America.

The concluding sentence of the article is basically correct.

Hmm. I don't know if the legitimacy of election in Russia really has been destroyed. Mr. Krastev is not exactly a reliable source on this. But if it has, it happened years before Putin. Most likely in the aftermath of the rigged 1996 Yeltsin's election. Or perhaps even earlier, as the result of Yeltsin's shelling of elected parliament in 1993. Incidentally, both of these blows to the democratic legitimacy were enthusiastically supported by the US.

"According to some polls, seventy percent of the population favors the impeachment of President Rousseff."
So what? At least fifty percent of America always seems to want to hang the sitting president, no matter who he may be. At least we are wise enough to handle the second violin to someone we would never want as president (I never understood why people who have/had a shot at the presidency-or at least nomination- are accepted as vice presidents: Ford, Bush I, Gore, even Biden as strange as it may seem), so we are not tempted to remove the top guy/gal on a whim. I can't even recall the last popular politician to be vice president in Brazilian.

Brazil followed by Greece. Electing Not very Serious People is the gift that keeps on giving for both countries. While Greece's government may actually be worse, the EU has decided for whatever reason to support them. Brazil has no such powerful ally. They. Are. Toast.

Maybe Japan. It definitely fits the mold of everyone knowing this current situation isnt sustainable combined with extreme short term complacency about the safety of major assets. Seems like a perfect recipe for a run on the markets that materializes out of nowhere.

Please accept my condolences Mrs. Doug.

Underrated comment +1

Whichever country whose corporations have borrowed most offshore in US$, or, who have allowed the greatest volume of 'hot money' to flood its capital markets.

They never learn.

BRICS are the new PIGS?

Except for the I . But its hard to pronounce without a vowel, and none in Tyler's list starts with a vowel that we can substitute.

Algeria ! Borders with révolutionary Tunisia, chaotic Libya, Mali at war.

Why not just plump for revolutionary Tunisia and its rapidly disappearing tourist industry then?

Forget the economics , it's the politics that decides in which order the dominoes will tumble. Left-leaners beware. If you'd like a nice soft ( ok , relatively soft ) landing , start giving up your valuable resources to American multinationals at pennies on the dollar , now.

Washington has the list.

Well, some people in Eastern Europe liked the idea of getting mortgages in Euros and Swiss Francs. The ones that went for Euros are fine, the ones that chose Swiss Francs (Hungary and Poland) have interesting problems: http://www.lacaixaresearch.com/en/web/guest/-/1503im-f6-es

Now, there's a good discussion on who should pay for the 80% currency exchange slide in Poland. Borrowers of CHF loans or the banks that issued them? http://www.reuters.com/article/2015/08/06/poland-banks-swissfranc-idUSL5N10H1QL20150806

What is worse? a) If borrowers pay and suffer a little, consumer spending goes down b) If the debt increase is beyond payment ability of borrowers , non-performing loans become an issue and future lending goes down c) if banks pay, it means loses, future lending goes down, perhaps bank stability is compromised.

Super Really Dark Horse, Saudia Arabia...Might be a better choice for Dark Horse in 2017. But they are burning through currency reserves faster than China and politically they seem to panicing due the Iran nuclear. The nation is in the midst of Mission Creep in Yemen with no exit strategy and next to the dangerous terrorist group ISIS who has had numerous attacks. There population has high wages and lots of benefits due the largest case of Dutch Disease ever. If oil markets don't improve in 12 months, they might be below $2T in reserves but they buying boatloads of weapons. (I know it is like saying the Yankees go into last place, but it has happened in the past.)

That said how much of Saudia Arabia is protesting the Iran nuclear deal because Iran can some impact on their position in the oil market?

Good choice.

Any financial problems the Saudis have won't be in 2016, but many years down the line. It has extremely low debt (only 1.6% to GDP), and it can borrow prodigiously on the basis of its future oil revenue. At some point it will have to make hard decisions, but it is a very long way off.

Otherwise for 2016, I vote Brazil over Greece (already happened IMO), Belrus or Russia. You can never go wrong picking the South American nation for financial crisis...Sort like picking Duke or Kentucky to win the NCAA tourament.

How about none of them? Years ago, David Broder offered that if you were out of ideas for your column, you could always invent a presidential candidate. If it does not happen, no one remembers. If it does, you said it first. People trafficking in economics and business journalism seem to follow the same policy with large doses of the rhetoric of panic.

31 comments and no one said the US?

Not sure whether to be relieved or frightened.

Cowen's query is what country will experience the next financial crisis, not economic crisis. What is a financial crisis? The standard definition is a situation when some financial assets suddenly lose a large part of their nominal value, the implication being that nominal value and real value have diverged so much that even a blind man can see. A common feature of countries that experience a financial crisis is a growing and substantial inequality. That's not to say that the latter causes the former, but there is an obvious historical correlation. Inequality in China has been growing by leaps and bounds and is as high as any place in the world, so it's not surprising that China is having a financial crisis. If I were to place a bet on Cowen's query, I'd identify those countries with the highest level of inequality and put them on the list. It's the rational thing to do.

Many diamond-mining African countries would end up on that list. Not sure if that's helpful.


The Brazilian macroeconomic situation is undoubtedly poor and the medium-term trend for fiscal sustainability is alarming. However, the numbers don't support an imminent financial crisis, despite it being 'a tradition'. It's still an investment grade credit for now.

Gross borrowing requirements/GDP are relatively high at 16.1%, but its is structured with limited foreign currency exposure and the non-resident share of local currency debt is a modest 18.3%. It has large FX reserves ($368bn) - (short term external debt + maturing LT external debt)/FX reserves = 32%, which is ample cover against external financial shocks. The CA deficit, ~4% GDP, are covered by FDI inflows so that (CA +FDI)/GDP ~ -0.3%.

In addition, the banking system is sound. The level of NPLs is relatively low 2.9% and average baseline credit assessment score is investment grade baa3, despite economic weakness. Capital and liquidity ratios have been consistently high.

This being the case, where do you see this financial crisis coming from?

Also, I know its less fun and should be taken with seasoning, but it can be instructive to have a look at the CDS spreads. Of the 66 sovereigns with CDS, and excluding Venezuela, Ukraine and Greece, the top ten are:

Pakistan 444
Costa Rica 377
Russia 376
Lebanon 371
Egypt 362
Cyprus 345
Tunisia 317
Brazil 307
Bahrain 291
Kazakhstan 286

[Turkey's on 262, China's on 102]

Can you explain what those numbers mean?

the CDS are financial instrument that give insurance against a default in the plublic debt of a country, the number is the basic points you have to pay for to buy insurance in a bond.

for example to insurance a million dollars of pakistan debt you have to pay 44.400 dollars

WTF is a "financial crisis" if a country can have it's currency devalued by 50% (like the Ruble just last year) and its GDP decrease 4% in a single quarter, and yet not have such crisis?


I would term a financial crisis is either when the country's financial system is at risk of collapsing, or that the government is unable to finance its routine expenditure without external bailouts. So far, Russia has avoided that. It certainly has a economic problems, although not yet an economic crisis, but financial crisis is still a ways off.

When banks start shutting down and people can't withdraw their deposits, that's when you know a crisis exists.

Then the U.S. hasn't had a financial crisis since the Great Depression. The last time I was in Russia (in February), I heard news of a bank failure on the TV, with people being unable to withdraw their deposits.

All of the above.


Brazil should be the top of the list followed by China. Brazil isn't all that far from having a political crisis given the high unpopularity of it's president at the moment.

Germany, and it can't come soon enough for the mercantilist know nothing autocrats. They are currency manipulators and deluded economically. I don't like being beastly to the Germans but it's true.

It’s worth noting that Belarus has elections this fall, and while the results are predetermined, there’s still a tradition of populist government spending

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