Country Risk is notoriously hard to define. Depending on the professional background of who you ask, you could get widely varying answers. In addition, there are various forms of country risk. Do we for example mean the risk of non-payment by the government of that country (sovereign risk), a strong and broad deterioration of the creditworthiness of all debtors in the country (collective debtor risk), the absence of ways to change local currency in foreign currency (convertibility risk) or restrictions in that country on the payment of foreign-currency denominated obligations to creditors abroad (transfer risk)? In addition, companies with cross-border operations care about many other related concepts, such as investment risk, currency risk and operational risk.
To help professionals and students getting started with country risk analysis, I developed a framework with country risk indicators. It gives an overview of political and macro-economic risk indicators that are particularly useful to analyze transfer and convertibility risk. The framework distinguishes between political and economic factors, as well as internal and external factors. It should be considered as a tool that facilitates doing country risk analysis, and not a perfect reflection of reality. In fact, the boundaries between political and economic spheres and between internal and external spheres are hard -if not impossible- to draw.
I made the framework with country risk indicators for the participants in our Country Risk Analysis Summer School. However, it may also be a valuable starting point for the analysis of countries in other settings. In this regard, it is important to realise that there is not one perfect framework that is endorsed by all experts. My selection of the categories and the division of indicators across them is based on my understanding of transfer and convertibility risk. Other experts in the field may have a different way of organising the many country risk indicators. After all, the framework reflects only a small number of possible indicators that could be used in country risk analysis.
The framework with country risk indicators is not adequate to deal with all countries under all circumstances. It should always be re-considered and re-designed in line with the context and objectives of the analysis.
- Our Framework of Country Risk Concepts
- Our Framework of Country Risk Indicators
- Our Template for Country Risk Reports
- How do you select Country Risk Indicators?
- What do your Country Risk Indicators mean?
- How do you find Country Risk Data?
- Free E-Book about Country Risk Analysis
- How do you become Country Risk Analyst?
- Framing China as Large Export Market
- A Flexible Tool for Impact Assessment of Political Risk Indicators (by Gaia Verhulst)
- Interview with Kai Gehring: Rating Agencies, Sovereign Ratings and the Home Bias
- Macro-Economic Risk Indicators [Reading List]
- Political Risk Analysis [Reading List]
- Political Risk Data [Reading List]
- Political Risk Indicators [Reading List]
- Sovereign Risk Ratings, Government Debt Defaults and Emerging Market Bond Spreads [Reading List]
- Transfer Risk Definition, Methodology and Ratings [Reading List]