Country Risk March 1996: Emerging markets boost ratings
Economists now predict an upturn in the world economy. Country scores in Euromoney's country risk ranking, based on our poll of economists and political analysts, plus market data and World Bank debt figures, have jumped by an average of 2.75 percentage points. Research and commentary by Charles Piggott.
Emerging markets boost ratings
Overall scores in this month's country risk ranking are notably higher than in September by an average of 2.75 percentage points. Emerging market countries account in no small part for the improvement: trade finance houses are demanding lower risk premiums on deals with emerging market countries and ratio's taken from World Bank debt tables show lower debt burdens on most emerging market economies.
Luxembourg's healthy economy has pushed it back to the top of the ranking,above Switzerland at 2, Singapore at 3, Japan at 4 and the United States at 5. But the biggest changes come further down the ranking between the Czech Republic at 36 and Uzbekistan at 114.
Central and eastern European countries are the fastest risers. Russia rises42 places to 100, Poland 14 places to 58, Latvia 27 places to 89, Lithuania33 places to 85, Czech Republic five places to 36, Croatia 39 places to78, Albania 47 places to 102, Kyrgyzstan 40 places to 121, Uzbekistan 29 places to 114 and former Yugoslav Republic of Macedonia 45 places
Sub-Saharan African countries slip down the ranking. The exceptions are Uganda which rises 54 places to 96, Zambia up 22 to 113 and Ethiopia up20 to 132. Similarly many Latin American countries fall although Peru, Argentina, Mexico and Bolivia regain some of the ground they lost during 1995.
But on the whole, emerging market countries are doing better than 12 months ago. Consistently higher scores from economists and political analysts for economic performance and political stability are confirmed by World Bank data. Growth in GNP levels and export earnings in emerging market countries has helped to bring down debt levels in the past two years: the average ratio of total debt service to export of goods and services (the level of a country's debt payments compared with its export earnings) for non-OECD countries in the top 100 has come down from 18.58% at the end of 1993 to 17.23% at the end of 1994. Current account deficits are down on average by 22% while ratios of total outstanding debt to GNP have come down to an average of a fraction over 54%.
Better trade finance terms in the last six months have helped. Trade banks and discount houses have lengthened out maturities offered to emerging market countries and lowered for faiting spreads over riskless countries such as the US: in September 1995 the average maximum tenor offered on discount on for faiting minus the spread over US deals was -0.23. The spread has now come down
Commercial bank lending to emerging market countries has also increased.World Bank debt tables show disbursements of private non-guaranteed debt to emerging market countries (mainly commercial bank lending) rose on average from $957 million to $1.2 billion from year end 1993 to 1994.
An extended survey of Euromoney's country risk rankings from 1993 to 1996 will be published with April's issue of the magazine. For further details please contact Charles Piggott on +44 171 779 8639.
Methodology Euromoney country risk assessment uses nine categories that fall into three broad groups: analytical indicators, credit indicators and market indicators. The weighted scores are calculated as follows: the highest score in each category receives the full mark for the weighting; the lowest receives zero. In between, figures are calculated according to the formula: Final score = weighting/(maximum score p; minimum score) x (score p; minimum score). The country risk ranking shows only the final scores after weighting. Categories are:
Economic data (25% weighting). Taken from the Euromoneyglobal economic projections 1995p;96 (see page 163). Each country scores the average of the evaluations for 1995 and 1996.
Political risk (25%). Euromoney polled risk analysts, risk insurance brokers and bank credit officers. They were asked to give each country a score of between zero and 10. A score of 10 indicates no risk of non-payment; zero indicates that there is no chance of payments being made. Countries were scored in comparison both with each other and with previous years. Country risk was defined as the risk of non-paymentor non-servicing of payment for goods or services, loans, trade-related finance and dividends, and the non-repatriation of capital. This category does not reflect the creditworthiness of
individual counter parties in any country.
Debt indicators (10%). Scores are calculated using the following ratios from the World Bank World Debt Tables 1995-96: debt service to exports (A); current-account balance to GNP (B); external debt to GNP(C). Figures are the latest available, mostly for 1993. Scores are calculated by the formula: C + (A x 2) p; (B x 10). The lower the score,
the better. Because of the lack of consistent economic data for OECD and rich oil-producing countries, these score full points with the exception of Turkey, Portugal and Mexico which report debt figures to the IMF. Developing countries that do not report debt data to the World Bank score zero.
Debt in default or rescheduled (10%). A score of between zero and 10 based on the amount of debt in default or that has been rescheduled over the past three years. Zero equals no non-payments; 10, all in default or rescheduled. Scores are based on the World Bank World Debt Tables1995-96 and Euromoney estimates for countries which do not report under the debtor reporting system (DRS).
Credit ratings (10%). The average of sovereign ratings from Moody's,Standard & Poor's and IBCA. For the first time Euromoney has scored countries that are not rated investment grade (ie BB-). This change in methodology has altered scores for credit ratings, even where the underlying credit ratings may not have changed.
Access to bank finance (5%). Calculated from disbursements of private, long-term, unguaranteed loans as a percentage of GNP. OECD countries which do not report under the debtor reporting system (DRS) score 10. Source:World Bank World Debt Tables 1995-96.
Access to short-term finance (5%). Members of OECD consensus group I score 10, members of group II score five, members of group III score nothing. Coverage from US Exim Bank and NCM UK is worth between zero and10, depending on the level of coverage available.
Access to international bond and syndicated loan markets (5%).Reflects Euromoney's analysis of how easily the country might tap the markets now, based largely on issues since January 1995. A score of 10 means no problem whatsoever; eight, no problem on 95% of occasions;six, usually no problem; four, possible (depending on conditions); two,just possible in some circumstances; zero, impossible.
Access to and discount on for faiting (5%). Reflects the average maximum tenor available and the for faiting spread over riskless countries such as the US. The score equals the average maximum tenor minus the spread.Countries for which forfaiting is not available score nothing. Data were supplied by Morgan Grenfell Trade Finance, West Merchant Bank, the London Forfaiting Company, Standard Bank and ING Capital.
Euromoney received replies from 24 economists at leading financial and economic institutions. They gave each country's economic performance a score out of 100, after making comparisons between countries and years. The world's fastest-growing, best-performing economy in an ideal year would score 100;the worst economy in a disastrous year would score zero. The economists were asked to look at sustained economic growth, monetary stability, current-account/budget deficit or surplus, unemployment and structural imbalances.
Respondents also gave their forecasts of real GNP growth for calendar years1996 and 1997. The scores in the ranking are the average of these forecasts.
Our thanks go to the 41 political analysts and economists who took part in our economic projections and political risk survey. Those who did not wish to remain anonymous were: G Seyler, Banque et Caisse d'Epargne de l'Etat; R Shields, Chemical Bank; A Astrow, Economist Intelligence Unit; H Fromlet,Swedbank; J Krijgsman, CIBC Economics; M Daepp, Crédit Suisse EconomicResearch; E Gelbard, Royal Bank of Canada; F Nicollas, Crédit Lyonnais;G Hardouvelis, National Bank of Greece; D Kern, National Westminster Bank;I Colhoun, Bain and Co; R de Iure, National Australia Bank; C Bruggemans,First National Bank Holdings; I Couwenberg, Kredietbank; T Shigeoka, Nomura Research Institute; F Hübner, Sal Oppenheim; E Horwitz, Handelsbanken;A Anderson, Den Danske Bank; E Roosens, Krediet bank; Y Miyakawa, Sumitomo Bank; K Schestauber, Creditanstalt Bankverein; W Leim, Dresdner Bank; WCouillault, McIntosh Securities; Mr Ting, Bank of Taiwan; M Daepp, CréditSuisse; R Pal, Jardine Fleming Securities; H Hong, Bank of East Asia; MSchieler, Swiss Bank Corporation; T Sealy, M O'Leary & W Coplin, Political Risk Services and P Voudouris, National Bank of Greece.