Country risk premia quarterly update

Quarter four 2013 update

Our latest country risk update for quarter four 2013 shows 2013 ended on a positive note for many advanced economies. We also look at effects on the US of the Federal Reserve and the tapering of its asset purchase programme. Finally, we look ahead to 2014 and why we think political cycles are likely to be a significant driver of risk levels this year. If you're not sure whether country risk affects you, watch our overview video below to get a better understanding.

Country risk map

                                                                                                                             
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Largest increase in CRP from previous quarter

  1. Syria
  2. Sudan

Largest decrease in CRP from previous quarter

  1. Greece
  2. Portugal

Commentary for key country risk trends in Q4 2013

Ending 2013 on a positive note

2013 ended on a positive note for many advanced economies. The positive signs of an economic recovery that first showed earlier in the year continued and confidence increased while downside risks to growth appeared to diminish further. GDP figures suggest that some economies such as the US, UK and Germany are building momentum, while the recession in the Eurozone, including in most "crisis" economies, looks to have bottomed out.

Fed tapering already factored into emerging market bonds

As expected, the Federal Reserve began "tapering" its asset purchase program at the end of the year, but clear signs of economic strength and clearer guidance from the central bank meant that there was little of the previous volatility that affected investors and emerging markets earlier in the year. Yields on US treasuries and other government bonds remained broadly stable.

Political cycles likely to be a significant driver of risk levels in 2014

Geopolitical events can also contribute to country risk and 2014 marks the start of an election cycle for several large emerging markets (for example India, Turkey and Indonesia with a combined voting population of just less than one billion people) and this could prove important for cross-border investors as governments look to maintain economic stability with one eye on the polls. Ukraine is an example of a country where uncertainty over its political future can contribute to higher risk. Its Country Risk Premium rating increased by 0.5 percentage points to 6.2% in quarter four as protests contributed to a state of uncertainty over its relationships with Europe and Russia.

Largest increase in CRP from previous quarter

  1. Central African Rep
  2. Chad

Largest decrease in CRP from previous quarter

  1. Syria
  2. Sudan

Commentary for key country risk trends in Q3 2013

Risk levels in Western Economies: Turning a corner?

Over the past 12 months, country risk has been on a declining trend in Western Economies as downside risks to economic growth appear to have diminished under the continued support of central banks. More recently, notes of cautious optimism have been detected; new growth figures suggest that some economies, such as the US and UK are on the road to a self sustaining recovery, while even the "crisis" Eurozone economies appear to be nearing a turning point.

The apparent increasing strength of the recovery in developed economies has led investors to expect the Federal Reserve to begin "tapering" its monthly asset purchases before the end of 2013, and as a result yields on US treasuries have increased by almost 1 percentage point in the last 12 months. Emerging markets have suffered as investors re-examined their potential risk/return frameworks, redirecting money back toward developed economies. For example, the average Country Risk Premium (CRP) for the BRIC economies increased by 0.2 percentage points over the last quarter. Domestic political events can also have an effect on the CRP, Turkey is a good example of this where, in addition to being affected by the general emerging market sell-off, it also had to contend with extended rioting over the summer, leading to a 0.8 percentage point increase in the CRP rating.

Largest increase in CRP from previous quarter

  1. Syria
  2. Eritrea

Largest decrease in CRP from previous quarter

  1. Greece
  2. Montenegro

Commentary for key country risk trends in Q2 2013

As investors fear the end of loose monetary policy conditions in western economies, they are pulling money out of the emerging markets, increasing their risk

One of the consequences of the extra loose monetary policy by central banks (such as Quantitative Easing in the US and UK) has been an inflow of foreign capital into debt, equities and currencies of emerging markets over the past two years. As investors searched for a higher return, this capital was increasingly invested into a number of emerging markets with a higher risk profile than the traditional BRIC countries (Brazil, Russia, India and China).

Following the Federal Reserve's (Fed) announcement on 20 June 2013 that it will start to "taper" bond purchases, the yield on benchmark 10-year Treasury notes jumped by around 40 basis points. The Fed’s move marked a start of investors paring back from emerging markets, a tendency which was encouraged by political unrest in countries such as Turkey, Egypt and Brazil. The average Country Risk Premium (CRP) increased by 0.2 percentage points over the last quarter in the BRIC countries. The N11 (Next Eleven) countries which include fast-growing economies such as Turkey, South Africa and Mexico also experienced a rise in its average CRP increasing by 0.6 percentage points between quarter one 2013 and quarter two 2013. We expect our next update to reflect the most recent examples of rising political dissatisfaction and emerging market flight to a greater extent.

Escalation of the regional unrest, particularly in Syria, is causing pockets of instability in the region, particularly in neighbouring countries, while having little impact on the Gulf

As a consequence of the continued civil war in Syria, the country’s CRP has increased by 3.9 percentage points to 11.4% in quarter two 2013. This is the biggest increase in the quarter two 2013 update and makes the country’s CRP similar to other destabilised countries in the region such as Sudan and Somalia. This instability has been largely concentrated in the Levant and Egypt, and has not spilled over into the more stable Gulf economies. Overall, the average CRP for MENA as a whole increased by 0.5 percentage points to 4.9%, whilst the trends for individual countries were highly dispersed: Egypt's CRP increased by 2.0 percentage points from quarter one 2013 whilst Saudi Arabia and UAE's CRP stayed the same, and Kuwait and Qatar's CRP actually fell.

Largest increase in CRP from previous quarter

  1. Grenada
  2. Montenegro

Largest decrease in CRP from previous quarter

  1. Greece
  2. Eritrea

Commentary for key country risk trends in Q1 2013

Risk in Sub-Saharan Africa catching up with the Middle East

After the Arab Spring saw the Middle East become the riskiest of the seven regions recorded in our country risk model in 2011, Sub-Saharan Africa is now closing the gap. The region was one of only two to not see its risk levels decline in the first quarter of 2013 as political risk issues rose to the fore. Kenya's electoral process suffered severe criticism and security measures were heightened following the unrest in Mali, Somalia and Algeria. But, the region has also seen some success stories: Burundi’s Country Risk Premium (CRP) fell by over 1% on the extended mandate of United Nation Peacekeepers and renewed negotiations between the government and the opposition group in preparation for the 2015 presidential elections.

The Eurozone periphery recovers while economic clouds gather over the UK

The past three months has seen pressure ease on the Southern European bonds. The markets continue to take at face value the commitment by Mario Draghi, President of the European Central Bank (ECB), to do "whatever it takes" to support the Euro, proving resilient despite the turmoil in Cyprus. Falling yields have been most noticeable in Greece, whose CRP fell by over 10%, with Portugal, Ireland and Spain close behind. For the first time in years, Ireland's bond yields also fell below Italy and Spain in the quarter, reflecting the return of the country to the debt markets and an economic growth rate that is expected to outperform the region as a whole in 2013. Across the Channel, economic risks were in focus as Moody's stripped the UK of its AAA credit rating and the Chancellor downgraded the UK's growth expectations in the Budget.

Largest increase in CRP from previous quarter

  1. Belize
  2. Fiji

Largest decrease in CRP from previous quarter

  1. Burundi
  2. Croatia

Commentary for key country risk trends in Q4 2012

Creditworthiness in Latin America questioned in Q4

Despite achieving a strong economic bounce-back since the financial crisis, Latin America endured a challenging end to 2012. Economic growth suffered in the region's largest economy, Brazil, as slow credit growth and weak investment have meant that its economy barely grew in 2012. And sovereign default concerns continue to plague other economies in the region. In Argentina, a US court ruling may force a sovereign default in 2013. Standard and Poors (S&P) currently considers the Belize government in breach of its obligations, with restructuring arrangements currently being negotiated with creditors. These pressures were reflected in higher country risk levels in Q4 - with the regional average Country Risk Premiums (CRP) increasing by 0.5% from Q3.

Contrasting risk factors on either side of the Atlantic.

Q4 marked another step in the sovereign debt crisis in the Eurozone. As the final touches on the Spanish bank bailout and a new Greek aid deal were put in place, our country risk model shows risks across the region receding, with Greek, Italian and Spanish Country Risk Premiums (CRPs) all falling to their lowest level since the start of 2012 . On the other side of the Atlantic, the economic outlook weakened in the face of bipartisan bargaining over the US' "Fiscal Cliff", with the yield on 10-Year Treasury bonds gradually trending upwards since mid-2012. We continue to recommend a careful consideration of country risk in the Eurozone in 2013, as political and economic risk factors continue to evolve. In Q1 2013, investors' attention will likely turn to the results of the February general election in Italy and the performance of the Greek economy in the face of further austerity measures.

Largest increase in CRP from previous quarter

  1. No CRP increases from previous quarter
  2. No CRP increases from previous quarter

Largest decrease in CRP from previous quarter

  1. Mauritania
  2. Greece

Commentary for key country risk trends in Q3 2012

Risk levels in Western Europe eases

The recent trend of rising country risk in Western Europe went into reverse in Q3 as peripheral Eurozone bond markets benefitted from the announcement that the ECB will undertake unlimited purchases of sovereign debt if required. Since the last quarter, 10-year spreads over Bunds have fallen by between 1.0-1.5% in Spain and Italy and by much further in Ireland, Portugal and Greece.

Hotspots of political tension in the Middle East remain

Country risk in the MENA region fell over the quarter as the region benefitted from a tightening in global capital market spreads. However, hotspots of political tension remain - particularly in Egypt, Libya and Afghanistan where political institutions are still in their infancy. According to our model, MENA is now the riskiest region globally - replacing Sub-Saharan Africa in Q3.

Largest increase in CRP from previous quarter

  1. Belarus
  2. Somalia

Largest decrease in CRP from previous quarter

  1. Greece
  2. Portugal

Largest increase in CRP from previous quarter

  1. Greece
  2. Hungary

Largest decrease in CRP from previous quarter

  1. Chad
  2. North Korea

Largest increase in CRP from previous quarter

  1. Greece
  2. North Korea

Largest decrease in CRP from previous quarter

  1. Iceland
  2. Hungary

Largest increase in CRP from previous quarter

  1. Greece
  2. Sudan

Largest decrease in CRP from previous quarter

  1. Eritrea
  2. Western Samoa

Largest increase in CRP from previous quarter

  1. Greece
  2. Western Samoa

Largest decrease in CRP from previous quarter

  1. Rwanda
  2. Zimbabwe

Largest increase in CRP from previous quarter

  1. Pakistan
  2. Cote d'Ivoire

Largest decrease in CRP from previous quarter

  1. Turkmenistan
  2. Tajikistan

Largest increase in CRP from previous quarter

  1. Greece
  2. Zimbabwe

Largest decrease in CRP from previous quarter

  1. Trinidad & Tobago
  2. Turkey

Largest increase in CRP from previous quarter

  1. Maldives
  2. Turkmenistan

Largest decrease in CRP from previous quarter

  1. Somalia
  2. Afghanistan

Largest increase in CRP from previous quarter

  1. Iraq
  2. Italy

Largest decrease in CRP from previous quarter

  1. Somalia
  2. North Korea

Largest increase in CRP from previous quarter

  1. Somalia
  2. North Korea

Largest decrease in CRP from previous quarter

  1. Iraq
  2. Jamaica

Largest increase in CRP from previous quarter

  1. Jamaica
  2. Georgia

Largest decrease in CRP from previous quarter

  1. Uruguay
  2. Venezuela

Largest increase in CRP from previous quarter

  1. Somalia
  2. Afghanistan

Largest decrease in CRP from previous quarter

  1. Georgia
  2. Seychelles

Largest increase in CRP from previous quarter

  1. Ireland
  2. Spain

Largest decrease in CRP from previous quarter

  1. Somalia
  2. Georgia

Largest increase in CRP from previous quarter

  1. Georgia
  2. Hungary

Largest decrease in CRP from previous quarter

  1. Haiti
  2. Afghanistan

Largest increase in CRP from previous quarter

  1. Haiti
  2. Afghanistan

Largest decrease in CRP from previous quarter

  1. No CRP decreases from previous quarter
  2. No CRP decreases from previous quarter

Largest increase in CRP from previous quarter

  1. Seychelles
  2. Zimbabwe

Largest decrease in CRP from previous quarter

  1. Somalia
  2. North Korea

Largest increase in CRP from previous quarter

  1. Somalia
  2. North Korea

Largest decrease in CRP from previous quarter

  1. Lebanon
  2. Brazil

Largest increase in CRP from previous quarter

  1. Somalia
  2. North Korea

Largest decrease in CRP from previous quarter

  1. Zimbabwe
  2. New Zealand

Largest increase in CRP from previous quarter

  1. Venezuela
  2. South Korea

Largest decrease in CRP from previous quarter

  1. Somalia
  2. Belarus

Largest increase in CRP from previous quarter

  1. Somalia
  2. Zimbabwe

Largest decrease in CRP from previous quarter

  1. Zambia
  2. -

Largest increase in CRP from previous quarter

  1. Zambia
  2. Dominican Republic

Largest decrease in CRP from previous quarter

  1. Zimbabwe
  2. Somalia

Largest increase in CRP from previous quarter

  1. Somalia
  2. Liberia

Largest decrease in CRP from previous quarter

  1. Myanmar
  2. Democratic Republic of the Congo

Largest increase in CRP from previous quarter

  1. Democratic Republic of the Congo
  2. Lebanon

Largest decrease in CRP from previous quarter

  1. Iraq
  2. Zimbabwe

Largest increase in CRP from previous quarter

  1. Zimbabwe
  2. Myanmar

Largest decrease in CRP from previous quarter

  1. North Korea
  2. Iraq

Largest increase in CRP from previous quarter

  1. Iraq
  2. North Korea

Largest decrease in CRP from previous quarter

  1. Zimbabwe
  2. Dominican Republic

Largest increase in CRP from previous quarter

  1. North Korea
  2. Dominican Republic

Largest decrease in CRP from previous quarter

  1. Argentina
  2. Democratic Republic of the Congo

Largest increase in CRP from previous quarter

  1. Grenada
  2. Argentina

Largest decrease in CRP from previous quarter

  1. Iraq
  2. Zimbabwe

Largest increase in CRP from previous quarter

  1. Somalia
  2. Haiti

Largest decrease in CRP from previous quarter

  1. Afghanistan
  2. Rwanda

Largest increase in CRP from previous quarter

  1. Iraq
  2. Zimbabwe

Largest decrease in CRP from previous quarter

  1. Qatar
  2. Colombia

Largest increase in CRP from previous quarter

  1. Argentina
  2. Cambodia

Largest decrease in CRP from previous quarter

  1. Iraq
  2. Zimbabwe

Largest increase in CRP from previous quarter

  1. Iraq
  2. Myanmar

Largest decrease in CRP from previous quarter

  1. North Korea
  2. Liberia

Largest increase in CRP from previous quarter

  1. North Korea
  2. Somalia

Largest decrease in CRP from previous quarter

  1. Cape Verde
  2. Vanuatu

Largest increase in CRP from previous quarter

  1. Turkey
  2. Brazil

Largest decrease in CRP from previous quarter

  1. Zimbabwe
  2. Liberia

Largest increase in CRP from previous quarter

  1. Zimbabwe
  2. Sudan

Largest decrease in CRP from previous quarter

  1. Argentina
  2. Somalia

Largest increase in CRP from previous quarter

  1. Argentina
  2. Dominican Republic

Largest decrease in CRP from previous quarter

  1. Iraq
  2. Zimbabwe

Largest increase in CRP from previous quarter

  1. Liberia
  2. North Korea

Largest decrease in CRP from previous quarter

  1. Laos
  2. Equatorial Guinea

Largest increase in CRP from previous quarter

  1. Jamaica
  2. Dominican Republic

Largest decrease in CRP from previous quarter

  1. Iraq
  2. Zimbabwe

Largest increase in CRP from previous quarter

  1. Somalia
  2. Mauritania

Largest decrease in CRP from previous quarter

  1. North Korea
  2. Tajikistan

Largest increase in CRP from previous quarter

  1. Uruguay
  2. Venezuela

Largest decrease in CRP from previous quarter

  1. Iraq
  2. North Korea

Largest increase in CRP from previous quarter

  1. Iraq
  2. North Korea

Largest decrease in CRP from previous quarter

  1. Thailand
  2. Bahrain

Largest increase in CRP from previous quarter

  1. Argentina
  2. Iraq

Largest decrease in CRP from previous quarter

  1. Iran
  2. Philippines

Largest increase in CRP from previous quarter

  1. Argentina
  2. Tonga

Largest decrease in CRP from previous quarter

  1. Iraq
  2. Uzbekistan

Largest increase in CRP from previous quarter

  1. Argentina
  2. Belgium

Largest decrease in CRP from previous quarter

  1. Iraq
  2. Sao Tome & Principe

Largest increase in CRP from previous quarter

  1. Iraq
  2. Myanmar

Largest decrease in CRP from previous quarter

  1. Peru
  2. Croatia

Largest increase in CRP from previous quarter

  1. Argentina
  2. Brazil

Largest decrease in CRP from previous quarter

  1. Iraq
  2. Rwanda

Largest increase in CRP from previous quarter

  1. Sao Tome & Principe
  2. Rwanda

Largest decrease in CRP from previous quarter

  1. Serbia
  2. Albania

Largest increase in CRP from previous quarter

  1. Iraq
  2. Serbia

Largest decrease in CRP from previous quarter

  1. Kazakhstan
  2. Jamaica

Largest increase in CRP from previous quarter

  1. Mauritania
  2. Peru

Largest decrease in CRP from previous quarter

  1. Pakistan
  2. Mauritius

Largest increase in CRP from previous quarter

  1. Pakistan
  2. Mauritius

Largest decrease in CRP from previous quarter

  1. Mauritania
  2. Peru

Largest increase in CRP from previous quarter

  1. Denmark
  2. Ireland

Largest decrease in CRP from previous quarter

  1. North Korea
  2. Somalia

Largest increase in CRP from previous quarter

  1. Georgia
  2. Guyana

Largest decrease in CRP from previous quarter

  1. Afghanistan
  2. Zambia

Largest increase in CRP from previous quarter

  1. Zambia
  2. Mauritania

Largest decrease in CRP from previous quarter

  1. Afghanistan
  2. Iraq

Largest increase in CRP from previous quarter

  1. Jordan
  2. Kazakhstan

Largest decrease in CRP from previous quarter

  1. Iraq
  2. Afghanistan

Largest increase in CRP from previous quarter

  1. Bulgaria
  2. Ecuador

Largest decrease in CRP from previous quarter

  1. Afghanistan
  2. Rwanda

Largest increase in CRP from previous quarter

  1. Moldova
  2. Turkmenistan

Largest decrease in CRP from previous quarter

  1. Afghanistan
  2. Serbia

Largest increase in CRP from previous quarter

  1. Afghanistan
  2. Rwanda

Largest decrease in CRP from previous quarter

  1. Grenada
  2. Dominica

Largest increase in CRP from previous quarter

  1. No changes in CRPs this quarter
  2. No changes in CRPs this quarter

Largest decrease in CRP from previous quarter

  1. No changes in CRPs this quarter
  2. No changes in CRPs this quarter

Largest increase in CRP from previous quarter

  1. -
  2. -

Largest decrease in CRP from previous quarter

  1. -
  2. -

Our country risk videos

Country risk in two minutes

Naz Naini gives an overview of what country risk is, why it's relevant for your business and our services in this area.

 

View transcript


How has country risk evolved?

Our interactive map, above, shows just how much country risk has evolved over the past decade. Some countries have become much riskier to operate in, whilst others have seen their risk levels fall. An analysis of country risk trends can help organisations identify these risks and opportunities early on in their planning processes.

For UK companies that have international operations or are considering opportunities abroad, managing and accounting for country risk will be a key consideration. Our country risk service can help companies to quantify and manage such risks in order to make better business decisions.


How can we help?

Our country risk service can help companies to quantify and manage such risks in order to make better business decisions.

We calculate Country Risk Premiums (CRPs) for 187 sovereign nations using an economic model that we have developed since 1998. Our model uses a range of inputs in generating CRPs, including reliable sources of credit and risk ratings and sovereign bond information.

For more information, please contact a member of the team.