:smiley: Sometimes it also refers to political risk.
:smiley: Many foreign loans are paid in US dollars and repaid with dollars.
:smiley: Normally, if political environment is unstable it may threaten foreign investments, including FDIs, investors will pull their investment out to prevent losses arising from sovereign risk.
:smiley: In this condition, the native currency declines rapidly compared to other currencies and the local governments will often impose capital controls to prevent more capital outflows from happened to the local country.
:smiley: Hence, foreign borrowers are often prohibited from using foreign currency such as US dollars, in repaying loans in an attempt to conserve the more valuable currency when the native currency is declining in value.
:smiley: An unstable political environment includes changes in government policy and changes in taxation policies and law and other problems , including public interest litigations, which subsequently hamper the production of goods and services rendered or the confiscation of assets of the business.