Country risk September 2010: Methodology

This year some changes have been made to the methodology for Euromoney’s bi-annual Country Risk survey. To make the ranking more subjective to the opinions of economists and research heads globally, the survey weightings have been changed to increase the influence of the political risk, economic performance and access to bank finance/capital markets categories. To obtain the overall country risk score, Euromoney assigns a weighting to six categories. These are political risk (30% weighting), economic performance (30%), structural assessment (10%), debt indicators (10%), credit ratings (10%) and access to bank finance/capital markets (10%).

Political risk: Economists and heads of research worldwide were asked to rate each country of which they have knowledge from 1 to 100 across six categories: government stability, regulation/regulatory environment, non-payment of loans/dividends/trade-related finance, non-repatriation of capital, corruption perception, information access/transparency and judicial system. These raw scores were then averaged to produce a total score and weighted to 30%.

Economic performance: Economists and heads of research worldwide were asked to rate each country of which they have knowledge from 1 to 100 across five categories (except for the growth forecast which was reported as a percentage): bank stability/risk, monetary/currency stability, government finances, employment/unemployment and economic GNP growth/forecast. These raw category scores were averaged and the score was adjusted by the growth forecast percentage to produce a total score and weighted to 30%. For political risk and economic performance, the score was weighted down by 20% where a country received fewer than three responses.

Structurals assessments: Economists and heads of research worldwide were asked to rate each country for which they have knowledge across four categories: labour market/industrial relations, demographics, soft infrastructure and hard infrastructure. These raw scores were then averaged to produce a total score and weighted to 10%.

Access to bank finance/capital markets: Heads of debt syndicate and loan syndications rated each country’s accessibility to international markets on a scale of 1 to 100, where 0 indicates no access at all and 100 indicates full access. These scores were averaged and then weighted to 10%.

Respondents were also asked if they had accessed a particular country’s market within the past six months.

Debt indicators: Calculated using these ratios from the World Bank’s global development finance figures: total debt stocks to GNP (A), debt service to exports (B), current account balance to GNP (C). Developing countries that do not report complete debt data get a score of zero.

Credit ratings: Nominal values are assigned to sovereign ratings from Moody’s, Standard & Poor’s and Fitch IBCA. The ratings are converted into a score using a set scoring chart. This score is then averaged and the score weighted to 7.5%. The higher the average value the better. Where there is no rating, countries score zero.

With special thanks to The World Bank, Standard & Poor’s, Moody’s Investors Service, Fitch IBCA

and the following economists/institutions for their contributions: Aristides Hatzis, University of Athens; Bernard Musyck, Frederick University; Birgit Niessner, Erste Bank; Cláudio Djissey Shikida, Ibmec Minas; Connie Bolland, ERA Economic Research Analysis; Francesca Panelli, Aletti Gestielle SGR SpA; Fung Kwan, University of Macau; Hans Holzhacker, UniCredit; Ilias Lekkos, Piraeus Bank; Jon Hyman, Economist Intelligence Unit; Kristofor Pavlov, UniCredit Bulbank; M Nicolas J Firzli, Canadian European Economic Council; Marcos Vera-Hernández, University College London; Mary Lou Walsh, PRS Group; Matthias Göthel, Postbank; Michail Vassiliadis, Mirosław Kachniewski, Polish Association of Listed Companies; Natalia Volchkova, CEFIR; Olena Bilan, Dragon Capital; Oswaldo Lopez, BBVA Banco Provincial; PA Gregg, University of Bristol; Peter Kretzmer, Bank of America; Plamen Pantev, ISIS Sofia; Risto Herrala, Bank of Finland; Tiina Helenius, Handelsbanken; Uosina Kubli, Sarasin Bank; Yiyi Lu, Chatham House; Anjali Verma, MF Global; Michael Laubsch, Eurasian Transition Group; Apollinaire Mupiganyi, Transparency International.