COUNTRY RISK

MANAGEMENT
By
Prof. K. RAJASEKARAN
Ex-AGM: Global Trust Bank Ltd.
Ex-Trainer: State Bank of Travancore
 COUNTRY RISK - MEANING
 Country Risk refers to the risk
associated with investing in a
particular country, or
 providing funds to its government.
 It can also be called sovereign risk
 These risks may be caused by
economic or political changes in a
foreign country
 Country Risk - Examples
 Exchange controls by monetary
authorities, or
 Repudiation of debt by Foreign Govt
 Lack of adequate foreign exchange
reserves (which will cause delays in loan
payments to creditor banks)
 Country Risk can include any event
causing non-payment by borrowers due to
macroeconomic developments beyond
their control.
 Country Rating
 Country Rating or Sovereign Rating
is done by :
 Euromoney
 Institutional Investor
 Standard & Poor
 Moody’s
 ECGC
 Country Rating - Factors
 Economic Factors
• Resource Base
• Macro-economic factors like GDP growth
and per capita income
• External Position of the country:
 Current Account Balance
 Debt to GDP Ratio
 Debt Service Ratio
 Ratio of Forex Reserves to Imports
 Country Rating – Factors (Contd.)

 Political Risks

• Stability of Political Climate

• Frequent revolutions/ coups
• Change of economic policies by political
regimes