Evaluating the Credit Impacts of Youth‑Led Protests in Asia

Fitch's Fixed Interest Podcast delivers the analyst insights and updates you need to stay ahead in a rapidly evolving market from global macroeconomic trends to sovereign credit developments to regulatory and political changes. Hi and welcome to the latest edition of our Fixed Interest Podcast series. I'm Harry Hoot from Fitch's Credit Commentary and Research Team and today I'm joined by Thomas Rookmacher, Head of Asia-Pacific Sormon Ratings. We will be discussing the social unrest and violent protests that erupted in several Asian countries last year. So Thomas, how do such episodes of social unrest impact sovereign credit profiles and what will Fitch be monitoring during 2026? Perhaps we can start with what happened in 2025. You remember the Middle East had the Arab Spring? Would you describe this process we've seen in Asia as the Asian Spring? Well thanks Harry. It was quite remarkable to see unrest and protests pop up in several different places in Asia last year. There were serious protests in Indonesia, the Moldivs, Mongolia, Nepal and Philippines for instance. And in recent years we already saw social unrest in Sri Lanka and Bangladesh and there is potential for social tensions to flare up again in Asia in 2026 we believe. So the so-called Gen Z protests showed some similarities such as the young age of many of the protesters, hence the name Gen Z and the use of the same symbols on the streets across Asia. There was also widespread use of social media platforms which provided powerful tools to coordinate the demonstrations and there were countries specific factors and triggers for these protests but there seemed to have been some common drivers as well. In most of the affected countries anger over corruption or concerns about governance standards have been an important catalyst for protests and high youth unemployment levels and challenging employment prospects seem to have played a role as well. And the jump in living costs since the COVID-19 pandemic was highlighted by protesters in several of these countries as well. I wouldn't call it an Asian spring though to make comparison with what happened in the Arab world in the early 2010s. The protest has seen less connected in Asia which is a very large and culturally diverse continent and it is hard to argue that these protests were spreading. Most of the protests in Asia seem less focused on overthrowing authoritarian regimes and hence carry a lower risk of leaving power vacuums. Now having said this, governments in Bangladesh and Nepal were forced to step down and were replaced by interim governments and both countries will be very interesting to closely monitor in coming months. Elections were held mid- February in Bangladesh and will be held early March in Nepal and if these countries get new governments that are reformminded and improve governance standards this could strengthen their sovereign credit profiles while delays in political transition could undermine policymaking effectiveness and further weakened governance standards. Thank you for highlighting the common drivers which includes as you say governance and leadership change but beyond these how does the protest typically affect sovereign courted profiles? Yes there are three other main channels in addition to the direct political impact on governance standards. So social unrest can weigh on economic activity it can affect countries external balances and its public finances. Now let's start with the impact on economic activity. This channel was highlighted by the sharp economic slowdown in the Philippines last year. Growth fell to 4.4% from 5.7% in 2024 and we had actually expected 6.2% for 2025 a year ago. So quite a large difference. And growth averaged just 3.5% in the second half of the year when the decline was driven in part by a sharp drop in public investment after President Markle's junior announced a crackdown on corruption amid protests over corruption scandal related to flood prevention works. We expect a Nepal's protests in September 25 to also have had a marked impact on growth and we lowered our forecast for the fiscal year ending mid-July 2026 to 2.5% from our earlier forecast of 3.5% so that was before the protests and this is down from growth of 4.6% a year earlier. In Indonesia there did not seem to be much impact on growth which remained broadly stable at around 5%. The protests were violent there but stability was restored relatively quickly so that may have helped. More generally however if underlying social tensions highlighted by the protests persist they can become more of a drag on growth in particular if confidence among foreign and domestic investors suffers from it. Social tensions can also form a distraction for policymakers and for instance limit reform implementation. An interesting example of that is the the farmer protests in India in 2020-2021 which appear to play an important role in the central government's decision to reverse agricultural reforms that were already passed in parliament. Thank you for the detailed explanation and those examples you mentioned are very interesting. So just now you flagged external finances as another transmission channel. Can you unpack that a bit? Yeah sure. Major bouts of political instability can cause immediate rating pressure if sovereign's external financing requirements and foreign currency debt burdens are large compared with its foreign exchange reserves. So what one example is the Maldives but we did not change its sovereign rating following protests in September 2025. The Maldives rating was already low at a double sea before the protests erupted but we do believe that the unrest has further complicated the implementation of policies to reduce the Maldives external financing pressures and it also highlights the challenges the government faces in repaying the secuk of 500 million US dollars that will mature in April this year. Just on a topic of financing what about public finance channel? How does that tend to play through? Yeah protests can make fiscal consolidation more challenging. Public finances and the trajectory of government debt to GDP are important rating sensitivities for several emerging markets in Asia. Dead levels have risen since the pandemic and fiscal space has decreased for several sovereigns. So yeah the fiscal policy responds to political flare ups can have a significant impact on sovereign credit profiles. Governments facing outbreaks of political unrest can become more reluctant to pursue fiscal consolidation. It could be more difficult to implement tax increases for instance or subsidy reform or governments may raise spending to head off public discontent. Several countries have increased support for households last year including Indonesia. Interestingly as I already mentioned public spending has been curtailed in the Philippines in response to the corruption scandal and the protests there and yeah spending in total has come down quite a bit there. So one important factor for the impact of social and political tensions on public finances is whether these tensions persist over time. So this can have a negative influence on budgetary performance over the medium term and one example is Thailand. Now we haven't seen disruptive or violent protests recently in Thailand but the country has seen prolonged political instability and our revision of the outlook on Thailand's triple B+ rating to negative in September 2025 reflected a rise in government debt to GDP. Any increasing risks its public finance outlook in the context of heightened political uncertainty. So that's the last question. I want to check with you why did ratings change so little in the wake of last year's protests? For the impact on the ratings the policy response and the existing buffers in the credit profile are key. So sovereigns with greater buffers such as lower debt or larger fiscal or foreign exchange reserves generally show resilience to bouts of social unrest and even protests that result in a change of government and Nepal is a good example of this. So the protests there in September 2025 were very violent and disruptive so the government fell parliament was dissolved but Fitch did not downgrade Nepal's double B- rating nor changed its stable outlook. So this basically reflects our view that the country's strong external liquidity position and modest and highly concessional government and external debt burdens should help to contain the near-term impact of the protests. It's important to note however that the rating pressure could build if we see increasing likelihood of continued political gridlock in Nepal that complicates economic policy making. So the elections that will be held on the 5th of March will probably give an indication of the potential for disruption in the longer term. So looking ahead, we will more generally continue to monitor the longer term impact of social tensions in Asia. The policy responses by the governments and the impact this has on the sovereign credit metrics and how this affects the buffers in the credit profiles. Thanks for your insights Thomas, I thank you everyone for listening. For more information on our ratings and our research on sovereigns, please visit us at FeatureDings.com. Subscribe to Fixed Interests wherever you get your podcasts. [BLANK_AUDIO]