Country risk methodology

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Country risk September 2006

September 2006 Country Risk
Assessment 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%), forfaiting (5%).

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.

Economic performance (25%): based (1) on GNI (Atlas Method) figures per capita and (2) on results of Euromoney poll of economic projections.

Debt indicators (10%): calculated using these ratios from the World Bank's Early Release Global Development Finance 2006: total debt stocks to GNP (A), debt service to exports (B); current account balance to GNP (C). Developing countries which do not report complete debt data get a score of 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 Early Release Global Development Finance 2006.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, Standard & Poors, Fitch IBCA and Capital Intelligence. 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. Source: World Bank's Early Release Global Development Finance 2006.

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 Atradius UK

Access to capital markets (5%): heads of debt syndicate and loan syndications rated each country's accessibility to international markets.

Discount on forfaiting (5%): reflects the average maximum Tenor for forfaiting. The maximum period of promissory note or bill of exchange from the issue date until its maturity date in the primary market, from the purchase/sale date to maturity in the secondary market data). Countries where forfaiting is not available score zero. We would like to thank Simon Lay at London Forfaiting, Mezra Forfaiting, David Locking at Standard Bank, and West LB who kindly supplied data.

Regional rankings

To obtain this ranking the overall Global Country Risk results were broken down by region. In addition Transparency International's Extended Corruption Perception Index was combined with the overall ranking to create a score out of 105. This combined total was then scaled down to a score out of 100. The difference in ranking and overall score between the original ranking and that incorporating the CPI data has been incorporated in the results.

We would like to thank Transparency International who kindly supplied the data as published in their Corruption Perceptions Index 2005 (List of all countries including those with less than 3 data points).

A CPI 2005 Score relates to perceptions of the degree of corruption as seen by business people, academics and risk analysts, and ranges between 10 (highly clean) and 0 (highly corrupt). The Transparency International Corruption Perceptions Index 2004 charts levels of corruption in 183 countries.

No CPI scores were available for the Marshall Islands, Micronesia, New Caledonia, the Solomon Islands, Tonga, and Vanuatu and they were therefore not included in the regional CPI adjusted rankings.

Please contact Paul Pedzinski on 44 (0) 20 7779 8233 or ppedzinski@euromoneyplc.com with any questions.

The overall country risk score is a weighted sum of scores in nine categories as follows: 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%); and forfaiting (5%). For overall scores in each region, an additional 5% weight was added for Transparency International's Extended Corruption Perception Index, and the total was then re-scaled to 100%.

Scores for political risk, economic performance and access to capital markets categories were calculated using ratings provided by experts in each area. Economic performance scores are an aggregation of experts’ ratings and GNI (Atlas method) per capita figures. Scores for debt indicators, debt in default or rescheduled, and access to bank finance were calculated using figures provided by the World Bank's Early Release Global Development Finance 2006. Scores for access to short-term finance were calculated using OECD consensus groups data provided by the ECGD and from short-term cover data from US Exim Bank and Atradius UK. Forfaiting scores were calculated using figures for average maximum tenor for forfaiting, provided by Simon Lay at London Forfaiting, Mezra Forfaiting, David Locking at Standard Bank, and West LB. Scores for credit ratings were calculated using using data provided by Moody's, Standard & Poors, Fitch IBCA and Capital Intelligence.