Country Risk Methodology
To obtain the overall country risk score, Euromoney assigns a weighting to nine categories. These are political risk (25% weighting), economic performance (25%), debt indicators (10%), Debt in default or rescheduled (10%), credit ratings (10%), access to bank finance (5%), access to short-term finance (5%), access to capital markets (5%), discount on forfaiting (5%).
The best underlying value per category achieves the full weighting (25, 10 or 5); the worst scores zero and all other values are calculated relative to these two. The formula used is the following: A-(A/(B-C)) x (D-C), where A = category weighting; B = lowest value* in range; C = highest value* in range, D = individual value.
*NB for debt indicators and debt in default, B and C are reversed in the formula, as the lowest score receives the full weighting and the highest gets zero.
Political risk (25% weighting): the risk of non-payment or non-servicing of payment for goods or services, loans, trade-related finance and dividends, and the non-repatriation of capital. Risk analysts give each country a score between 10 and zero – the higher, the better. This does not reflect the creditworthiness of individual counterparties.
Economic performance (25%): based (1) on GNI (Atlas Method) figures per capita and (2) on results of Euromoney poll of economic projections, where each country’s score is obtained from average projections for 2003 and 2004. The sum of these two factors, equally weighted, makes up this column – the higher the result, the better.
*GNI Figures were unavailable for unavailable for the following countries, so GDP data were used instead: Afghanistan, Bahrain, Bermuda, Cuba, Iraq, North Korea , Liberia, Libya, Myanmar, Oman, Qatar, Somalia, Taiwan.
Debt indicators (10%): calculated using these ratios from the World Bank’s World Development Indicators 2002: total debt stocks to GNP (A), debt service to exports (B); current account balance to GNP (C). Scores are calculated as follows: A + (B x 2) – (C x 10). The lower this score, the better. Figures are for 2001.
Because of lack of consistent economic data for OECD and rich oil-producing countries, these score the full weighting, except where they report debt figures to the IMF. Developing countries which do not report complete debt data get zero.
Debt in default or rescheduled (10%): scores are based on the ratio of rescheduled debt to debt stocks, taken from the World Bank’s World Development Indicators 2003. The lower the ratio, the better. OECD and developing countries which do not report under the debtor reporting system (DRS) score 10 and zero respectively.
Credit ratings (10%): nominal values are assigned to sovereign ratings from Moody’s, S&P and Fitch IBCA. The higher the average value, the better. Where there is no rating, countries score zero.
Access to bank finance (5%): calculated from disbursements of private, long-term, unguaranteed loans as a percentage of GNP. The higher the result, the better. OECD and developing countries not reporting under the DRS score five and zero respectively. Source: the World Bank’s World Development Indicators 2003.
Access to short-term finance (5%): takes into account OECD consensus groups (source: ECGD) and short-term cover available from the US Exim Bank and NCM UK. The higher the score, the better.
Access to capital markets (5%): heads of debt syndicate and loan syndications rated each country’s accessibility to international markets at the time of the survey. The higher the average rating out of 10, the better.
Discount on forfaiting (5%): reflects the average maximum tenor for forfaiting and the average spread over riskless countries such as the US. The higher the score, the better. Countries where forfaiting is not available score zero. We would like to thank Guy Brookes at Deutsche Bank, Mezra Finance, Standard Bank, and WestLB who kindly supplied data.
Economic projections methodology
Euromoney received replies from 32 economists at financial and economic institutions. They gave each country’s economic performance for 2003 and 2004 a score out of 100. The fastest-growing, best-performer in an ideal year would score 100; the worst economy in a disastrous year would score zero. Respondents were asked to consider economic growth, monetary stability, current-account, budget deficit or surplus, unemployment and structural imbalances. Economists also gave 2003 and 2004 GNP growth forecasts. Countries that got no votes were excluded from this table.
Our thanks go to the analysts and economists and contributors. Those who did not request anonymity were: Guy Brooks, Deutsche Bank; Bernard Butticker, UBS AG; Francis Nicollas, Crédit Lyonnais; Sruti Patel, Afrinvest; Maxine Koster and team, CSFB; Conrad Schuller, Erste Bank; Tanvir Abid, Jahangir Siddiqui and Co. Ltd; Takeshi Shigeoka, Nomura Research Institute; Barbara Thomas, DNB; Daniel W Skubik, International Legal & Political Risk Consultancy; Alex Durrer, LGT Capital Management; Gregor Eder, Dresdner Bank; Thierry Apoteker, TAC Applied Economic and Financial Research; Sidney Weintraub, Center for Strategic and International Studies; Linda Y Yueh, London School of Economics; William Dugan, Summit Analytical Associates; Llewellyn D Howell, Mary Teagarden, Kishmore Dash, Roy Nelson, Thunderbird Global Business Faculty, The American Graduate School of International Management; James Ker-Lindsay, Civilitas Research; Hans P Belcsak, S.J. Rundt Associates Inc; Jestyn Cooper, The Eric Morris Consultancy Ltd.; David Line, Asia Intelligence; Juan Carlos Cure, Royal Bank of Canada; Anthony Galloway, SKNA National Bank Ltd.; Dimiter Koutelov, Economic and Investment Bank; Helmut Bernkopf, HVB.
