Country Albania Argentina Armenia Australia Austria [1] Azerbaijan Bahamas Bahrain Barbados Belarus Belgium [1] Belize

Bermuda Bolivia Bosnia and Herzegovina Botswana Brazil Bulgaria Cambodia Canada Cayman Islands Chile China Colombia Costa Rica Croatia Cuba Cyprus [1] Czech Republic Denmark Dominican Republic Ecuador Egypt El Salvador Estonia Fiji Islands Finland [1] France [1] Germany [1] Greece [1] Guatemala Honduras Hong Kong Hungary Iceland

Long-Term Rating Adj. Default Spread Total Risk Premium B1 650 14.75% B3 900 18.50% Ba2 400 11.00% Aaa 0 5.00% Aaa 0 5.00% Ba1 300 9.50% A1 140 7.10% A2 160 7.40% A3 175 7.63% B1 650 14.75% Aa1 70 6.05% Caa1 1200 23.00% Aaa 0 5.00% B3 900 18.50% B2 750 16.25% A1 140 7.10% Ba1 300 9.50% Baa3 260 8.90% B2 750 16.25% Aaa 0 5.00% Aa3 120 6.80% A1 140 7.10% A1 140 7.10% Baa3 260 8.90% Ba1 300 9.50% Baa2 225 8.38% Caa1 1200 23.00% Aa3 120 6.80% A1 140 7.10% Aaa 0 5.00% B2 750 16.25% Ca 260 8.90% Ba1 300 9.50% Baa2 225 8.38% A1 140 7.10% Ba2 400 11.00% Aaa 0 5.00% Aaa 0 5.00% Aaa 0 5.00% A1 140 7.10% Ba1 300 9.50% B2 750 16.25% Aa2 100 6.50% A3 175 7.63% Baa1 200 8.00%

India Indonesia Ireland [1] Isle of Man Israel Italy [1] Jamaica Japan Jordan Kazakhstan Korea Kuwait Latvia Lebanon Lithuania Luxembourg [1] Macao Malaysia Malta [1] Mauritius Mexico Moldova Mongolia Montenegro Morocco Netherlands [1] New Zealand Nicaragua Norway Oman Pakistan Panama Papua New Guinea Paraguay Peru Philippines Poland Portugal [1] Qatar Romania Russia Saudi Arabia Singapore Slovakia Slovenia [1] South Africa

Ba2 Ba3 Aaa Aaa A1 Aa2 Ba2 Aa3 Baa3 Baa1 A2 Aa2 A3 B3 A2 Aaa Aa3 A3 A1 Baa2 Baa1 Caa1 B1 Ba2 Ba1 Aaa Aaa B3 Aaa A2 B3 Ba1 B1 B3 Baa3 B1 A2 Aa2 Aa2 Baa3 Baa1 A1 Aaa A1 Aa2 A2

400 525 0 0 140 100 400 120 260 200 160 100 175 900 160 0 120 175 140 225 200 1200 650 400 300 0 0 900 0 160 900 300 650 900 260 650 160 100 100 260 200 140 0 140 100 160

11.00% 12.88% 5.00% 5.00% 7.10% 6.50% 11.00% 6.80% 8.90% 8.00% 7.40% 6.50% 7.63% 18.50% 7.40% 5.00% 6.80% 7.63% 7.10% 8.38% 8.00% 23.00% 14.75% 11.00% 9.50% 5.00% 5.00% 18.50% 5.00% 7.40% 18.50% 9.50% 14.75% 18.50% 8.90% 14.75% 7.40% 6.50% 6.50% 8.90% 8.00% 7.10% 5.00% 7.10% 6.50% 7.40%

Spain [1] St. Vincent & the Grenadines Suriname Sweden Switzerland Taiwan Thailand Trinidad and Tobago Tunisia Turkey Turkmenistan Ukraine United Arab Emirates United Kingdom United States of America Uruguay Venezuela Vietnam

Aaa B1 Ba3 Aaa Aaa Aa3 Baa1 Baa1 Baa2 Ba3 B2 B1 Aa2 Aaa Aaa B1 B1 Ba3

0 650 525 0 0 120 200 200 225 525 750 650 100 0 0 650 650 525

5.00% 14.75% 12.88% 5.00% 5.00% 6.80% 8.00% 8.00% 8.38% 12.88% 16.25% 14.75% 6.50% 5.00% 5.00% 14.75% 14.75% 12.88%

Country Risk Premium Region 9.75% Eastern Europe & Russia 13.50% Central and South America 6.00% Eastern Europe & Russia 0.00% Australia & New Zealand 0.00% Western Europe 4.50% Eastern Europe & Russia 2.10% Caribbean 2.40% Middle East 2.63% Caribbean 9.75% Eastern Europe & Russia 1.05% Western Europe 18.00% Central and South America 0.00% Caribbean 13.50% Central and South America 11.25% Eastern Europe & Russia 2.10% Africa 4.50% Central and South America 3.90% Eastern Europe & Russia 11.25% Asia 0.00% North America 1.80% Caribbean 2.10% Central and South America 2.10% Asia 3.90% Central and South America 4.50% Central and South America 3.38% Eastern Europe & Russia 18.00% Caribbean 1.80% Western Europe 2.10% Eastern Europe & Russia 0.00% Western Europe 11.25% Caribbean 3.90% Central and South America 4.50% Africa 3.38% Central and South America 2.10% Eastern Europe & Russia 6.00% Asia 0.00% Western Europe 0.00% Western Europe 0.00% Western Europe 2.10% Western Europe 4.50% Central and South America 11.25% Central and South America 1.50% Asia 2.63% Eastern Europe & Russia 3.00% Western Europe

6.00% 7.88% 0.00% 0.00% 2.10% 1.50% 6.00% 1.80% 3.90% 3.00% 2.40% 1.50% 2.63% 13.50% 2.40% 0.00% 1.80% 2.63% 2.10% 3.38% 3.00% 18.00% 9.75% 6.00% 4.50% 0.00% 0.00% 13.50% 0.00% 2.40% 13.50% 4.50% 9.75% 13.50% 3.90% 9.75% 2.40% 1.50% 1.50% 3.90% 3.00% 2.10% 0.00% 2.10% 1.50% 2.40%

Asia Asia Western Europe Financial Center Middle East Western Europe Caribbean Asia Middle East Eastern Europe & Russia Asia Middle East Eastern Europe & Russia Middle East Eastern Europe & Russia Financial Center Asia Asia Western Europe Africa North America Eastern Europe & Russia Asia Eastern Europe & Russia Africa Western Europe Australia & New Zealand Central and South America Western Europe Middle East Asia Central and South America Asia Central and South America Central and South America Asia Eastern Europe & Russia Western Europe Middle East Eastern Europe & Russia Eastern Europe & Russia Middle East Asia Eastern Europe & Russia Eastern Europe & Russia Africa

0.00% 9.75% 7.88% 0.00% 0.00% 1.80% 3.00% 3.00% 3.38% 7.88% 11.25% 9.75% 1.50% 0.00% 0.00% 9.75% 9.75% 7.88%

Western Europe Caribbean Caribbean Western Europe Western Europe Asia Asia Caribbean Africa Asia Eastern Europe & Russia Eastern Europe & Russia Middle East Western Europe North America Central and South America Central and South America Asia

Estimating Country Risk Premiums

To estimate the long term country risk premium, I start with the country rating (from Moody's: www.moodys.com) and estimate the default spread for that rating (US corporates and country bonds) over the treasury bond rate. This becomes a measure of the added country risk premium for that country. I add this default spread to the historical risk premium for a mature equity market (estimated from US historical data) to estimate the total risk premium. In the short term especially, the equity country risk premium is likely to be greater than the country's default spread. You can estimate an adjusted country risk premium by multiplying the default spread by the relative equity market volatility for that market (Std dev in country equity market/Std dev in country bond) In this spreadsheet, I have used the global average of equity to bond market volatility of 1.5 to estimate the country equity risk premium.
Enter the current risk premium for a mature equity market The US corporate spreads come from a deeper market, but the country bond spreads may be a more direct measure of country risk. To update the spreads go to the bottom of the spreadsheet. Do you want to adjust the country risk premium for the additional volatility of the equity market? If no, use the country risk premium from the columns below If yes, you can adjust the country risk premium for the relative volatility of the equity market below: Enter the country risk premium from default spread = Enter the standard deviation in the equity market in the country = Enter the standard deviation in the long term bond issued by the country = The adjusted country risk premium for your country is =

Country Albania Argentina Armenia Australia Austria [1] Azerbaijan Bahamas Bahrain Barbados Belarus Belgium [1] Belize Bermuda

Region
Eastern Europe & Russia Central and South America Eastern Europe & Russia Australia & New Zealand

Western Europe Eastern Europe & Russia

Caribbean

Middle East Caribbean Eastern Europe & Russia Western Europe Central and South America Caribbean

Long-Term Rating B1 B3 Ba2 Aaa Aaa Ba1 A1 A2 A3 B1 Aa1 Caa1 Aaa

Adj. Default Spread 650 900 400 0 0 300 140 160 175 650 70 1200 0

Bolivia Bosnia and Herzegovina Botswana Brazil Bulgaria Cambodia Canada Cayman Islands Chile China Colombia Costa Rica Croatia Cuba Cyprus [1] Czech Republic Denmark Dominican Republic Ecuador Egypt El Salvador Estonia Fiji Islands Finland [1] France [1] Germany [1] Greece [1] Guatemala Honduras Hong Kong Hungary Iceland India

Central and South America Eastern Europe & Russia Africa Central and South America Eastern Europe & Russia Asia North America Caribbean Central and South America Asia Central and South America Central and South America Eastern Europe & Russia Caribbean Western Europe Eastern Europe & Russia Western Europe Caribbean Central and South America Africa Central and South America Eastern Europe & Russia Asia Western Europe Western Europe Western Europe Western Europe Central and South America Central and South America Asia Eastern Europe & Russia Western Europe Asia

B3 B2 A1 Ba1 Baa3 B2 Aaa Aa3 A1 A1 Baa3 Ba1 Baa2 Caa1 Aa3 A1 Aaa B2 Ca Ba1 Baa2 A1 Ba2 Aaa Aaa Aaa A1 Ba1 B2 Aa2 A3 Baa1 Ba2

900 750 140 300 260 750 0 120 140 140 260 300 225 1200 120 140 0 750 260 300 225 140 400 0 0 0 140 300 750 100 175 200 400

Indonesia Ireland [1] Isle of Man Israel Italy [1] Jamaica Japan Jordan Kazakhstan Korea Kuwait Latvia Lebanon Lithuania Luxembourg [1] Macao Malaysia Malta [1] Mauritius Mexico Moldova Mongolia Montenegro Morocco Netherlands [1] New Zealand Nicaragua Norway Oman Pakistan Panama Papua New Guinea Paraguay

Asia Western Europe Financial Center Middle East Western Europe Caribbean Asia Middle East Eastern Europe & Russia Asia Middle East Eastern Europe & Russia Middle East Eastern Europe & Russia Financial Center Asia Asia Western Europe Africa Central and South America Eastern Europe & Russia Asia Eastern Europe & Russia Africa Western Europe Australia & New Zealand Central and South America Western Europe Middle East Asia Central and South America Asia Central and South America

Ba3 Aaa Aaa A1 Aa2 Ba2 Aa3 Baa3 Baa1 A2 Aa2 A3 B3 A2 Aaa Aa3 A3 A1 Baa2 Baa1 Caa1 B1 Ba2 Ba1 Aaa Aaa B3 Aaa A2 B3 Ba1 B1 B3

525 0 0 140 100 400 120 260 200 160 100 175 900 160 0 120 175 140 225 200 1200 650 400 300 0 0 900 0 160 900 300 650 900

Peru Philippines Poland Portugal [1] Qatar Romania Russia Saudi Arabia Singapore Slovakia Slovenia [1] South Africa Spain [1] St. Vincent & the Grenadines Suriname Sweden Switzerland Taiwan Thailand Trinidad and Tobago Tunisia Turkey Turkmenistan Ukraine United Arab Emirates United Kingdom United States of America Uruguay Venezuela Vietnam

Central and South America Asia Eastern Europe & Russia Western Europe Middle East Eastern Europe & Russia Eastern Europe & Russia Middle East Asia Eastern Europe & Russia Eastern Europe & Russia Africa Western Europe Caribbean Caribbean Western Europe Western Europe Asia Asia Caribbean Africa Asia Eastern Europe & Russia Eastern Europe & Russia Middle East Western Europe North America Central and South America Central and South America Asia

Baa3 B1 A2 Aa2 Aa2 Baa3 Baa1 A1 Aaa A1 Aa2 A2 Aaa B1 Ba3 Aaa Aaa Aa3 Baa1 Baa1 Baa2 Ba3 B2 B1 Aa2 Aaa Aaa B1 B1 Ba3

260 650 160 100 100 260 200 140 0 140 100 160 0 650 525 0 0 120 200 200 225 525 750 650 100 0 0 650 650 525

Rating Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3

Default spread in basis points 0 70 100 120 140 160 175 200 225 260 300 400 525 650 750 900 1200 1350 1500

Premiums

5.00%

! I use the risk premium for the United States for this estimate The historical spreads represent an average over 5 years

sk. To update the spreads Yes ! Yes or No

5.50% 61% 35% 9.59%

! Use annualized historical volatility ! Use annualized historical volatility

Total Risk Premium 14.75% 18.50% 11.00% 5.00% 5.00% 9.50% 7.10% 7.40% 7.63% 14.75% 6.05% 23.00% 5.00%

Country Risk Premium Has to be sorted in ascending order 9.75% Rating Default spread in basis points 13.50% A1 140 6.00% A2 160 0.00% A3 175 0.00% Aa1 70 4.50% Aa2 100 2.10% Aa3 120 2.40% Aaa 0 2.63% B1 650 9.75% B2 750 1.05% B3 900 18.00% Ba1 300 0.00% Ba2 400

18.50% 16.25% 7.10% 9.50% 8.90% 16.25% 5.00% 6.80% 7.10% 7.10% 8.90% 9.50% 8.38% 23.00% 6.80% 7.10% 5.00% 16.25% 8.90% 9.50% 8.38% 7.10% 11.00% 5.00% 5.00% 5.00% 7.10% 9.50% 16.25% 6.50% 7.63% 8.00% 11.00%

13.50% 11.25% 2.10% 4.50% 3.90% 11.25% 0.00% 1.80% 2.10% 2.10% 3.90% 4.50% 3.38% 18.00% 1.80% 2.10% 0.00% 11.25% 3.90% 4.50% 3.38% 2.10% 6.00% 0.00% 0.00% 0.00% 2.10% 4.50% 11.25% 1.50% 2.63% 3.00% 6.00%

Ba3 Baa1 Baa2 Baa3 Caa1 Caa2 Caa3

525 200 225 260 1200 1350 1500

12.88% 5.00% 5.00% 7.10% 6.50% 11.00% 6.80% 8.90% 8.00% 7.40% 6.50% 7.63% 18.50% 7.40% 5.00% 6.80% 7.63% 7.10% 8.38% 8.00% 23.00% 14.75% 11.00% 9.50% 5.00% 5.00% 18.50% 5.00% 7.40% 18.50% 9.50% 14.75% 18.50%

7.88% 0.00% 0.00% 2.10% 1.50% 6.00% 1.80% 3.90% 3.00% 2.40% 1.50% 2.63% 13.50% 2.40% 0.00% 1.80% 2.63% 2.10% 3.38% 3.00% 18.00% 9.75% 6.00% 4.50% 0.00% 0.00% 13.50% 0.00% 2.40% 13.50% 4.50% 9.75% 13.50%

8.90% 14.75% 7.40% 6.50% 6.50% 8.90% 8.00% 7.10% 5.00% 7.10% 6.50% 7.40% 5.00% 14.75% 12.88% 5.00% 5.00% 6.80% 8.00% 8.00% 8.38% 12.88% 16.25% 14.75% 6.50% 5.00% 5.00% 14.75% 14.75% 12.88%

3.90% 9.75% 2.40% 1.50% 1.50% 3.90% 3.00% 2.10% 0.00% 2.10% 1.50% 2.40% 0.00% 9.75% 7.88% 0.00% 0.00% 1.80% 3.00% 3.00% 3.38% 7.88% 11.25% 9.75% 1.50% 0.00% 0.00% 9.75% 9.75% 7.88%

Foreign Currency Local Currency

Albania Argentina Armenia Australia Austria [1] Azerbaijan Bahamas Bahrain Barbados Belarus Belgium [1] Belize Bermuda Bolivia Bosnia and Herzegovina Botswana Brazil Bulgaria Cambodia Canada Cayman Islands Chile China Colombia Costa Rica Croatia Cuba Cyprus [1] Czech Republic Denmark Dominican Republic Ecuador Egypt El Salvador Estonia Fiji Islands Finland [1] France [1] Germany [1] Greece [1] Guatemala Honduras Hong Kong Hungary Iceland India Indonesia Ireland [1] Isle of Man B1 B3 Ba2 Aaa Aaa Ba1 A3 A2 Baa2 B1 Aa1 Caa1 Aa1 B3 B2 A2 Ba1 Baa3 B2 Aaa Aa3 A2 A1 Ba1 Ba1 Baa3 Caa1 Aa3 A1 Aaa B2 Ca Ba1 Baa3 A1 Ba2 Aaa Aaa Aaa A1 Ba2 B2 Aa2 A3 Baa1 Baa3 Ba3 Aaa Aaa B1 B3 Ba2 Aaa Aaa Ba1 A1 A2 A3 B1 Aa1 Caa1 Aaa B3 B2 A1 Ba1 Baa3 B2 Aaa Aa3 A1 A1 Baa3 Ba1 Baa2 Caa1 Aa3 A1 Aaa B2 Ca Ba1 Baa2 A1 Ba2 Aaa Aaa Aaa A1 Ba1 B2 Aa2 A3 Baa1 Ba2 Ba3 Aaa Aaa

Local-Currency Government Bond Ratings reflect the governments ca

Foreign-Currency Government Bond Ratings reflect the governments

Israel Italy [1] Jamaica Japan Jordan Kazakhstan Korea Kuwait Latvia Lebanon Lithuania Luxembourg [1] Macao Malaysia Malta [1] Mauritius Mexico Moldova Mongolia Montenegro Morocco Netherlands [1] New Zealand Nicaragua Norway Oman Pakistan Panama Papua New Guinea Paraguay Peru Philippines Poland Portugal [1] Qatar Romania Russia Saudi Arabia Singapore Slovakia Slovenia [1] South Africa Spain [1] Suriname Sweden Switzerland Taiwan Thailand Trinidad and Tobago

A1 Aa2 B1 Aaa Ba2 Baa2 A2 Aa2 A3 B3 A2 Aaa Aa3 A3 A1 Baa2 Baa1 Caa1 B1 Ba2 Ba1 Aaa Aaa Caa1 Aaa A2 B3 Ba1 B1 B3 Ba1 B1 A2 Aa2 Aa2 Baa3 Baa1 A1 Aaa A1 Aa2 Baa1 Aaa B1 Aaa Aaa Aa3 Baa1 Baa1

A1 Aa2 Ba2 Aa3 Baa3 Baa1 A2 Aa2 A3 B3 A2 Aaa Aa3 A3 A1 Baa2 Baa1 Caa1 B1 Ba2 Ba1 Aaa Aaa B3 Aaa A2 B3 Ba1 B1 B3 Baa3 B1 A2 Aa2 Aa2 Baa3 Baa1 A1 Aaa A1 Aa2 A2 Aaa B1 Ba3 Aaa Aaa Aa3 Baa1 Baa1

St. Vincent & the Grenadines 1 B

Tunisia Turkey Turkmenistan Ukraine United Arab Emirates United Kingdom United States of America Uruguay Venezuela Vietnam

Baa2 Ba3 B2 B1 Aa2 Aaa Aaa B1 B2 Ba3

Baa2 Ba3 B2 B1 Aa2 Aaa Aaa B1 B1 Ba3

GOVERNMENT BOND RATINGS IN LOCAL AND FOREIGN CURRENCY

rnment Bond Ratings reflect the governments capacity and willingness to generate local-currency revenue to repay its local-currency bonds on a timely basis.

vernment Bond Ratings reflect the governments capacity and willingness to mobilize foreign exchange to repay its foreign-currency denominated bonds on a timely basis.

ds on a timely basis.

minated bonds on a timely basis.