Apr 29, 2016 - Richard Turnill
Sovereign debt is not “risk free.” That’s the reality we’ve all had to accept in the years since the global financial crisis, as one advanced economy after another has dealt with fiscal deterioration. In reality, sovereigns never were devoid of credit risk, but the probability of capital erosion through default, inflation or devaluation has certainly increased since 2009.
That’s the bad news. The good news is that tracking and comparing sovereign credit risk has never been easier, thanks to the new interactive graphic version of the BlackRock Sovereign Risk Index (BSRI).
Shuffles in emerging market rankings
The latest quarterly update of the BSRI reveals some key trends – particularly in the emerging world. China fell three notches in the rankings as rapidly rising debt levels and a deteriorating budget balance weighed on its fiscal profile. India, by contrast, jumped four notches on improving growth prospects and budget trends.
How we quantify sovereign credit risk
The BSRI, which the BlackRock Investment Institute first launched in 2011, provides investors with a framework for tracking sovereign credit risk in 50 countries. Each country is assigned a BSRI score and ranking every quarter based on more than 30 quantitative measures falling into four main categories:
- Fiscal Space assesses whether a country is on a fiscally sustainable path.
- External Finance Position examines how leveraged a country might be to macroeconomic trade and policy shocks outside of its control.
- Financial Sector Health measures how healthy a country’s financial sector is.
- Willingness to Pay gauges how able and willing a country is to pay off its debt.
Each category is assigned a different weight in the calculations used to come up with a country’s final score. The top countries on the ranking list have the least risky debt and vice versa.
With the new and improved version of the BSRI, not only can you see past and current BSRI scores for every country tracked, you also can run custom side-by-side country comparisons and see the BSRI scores visually represented on a global sovereign risk map (see the image below). Delve into the details of the biggest quarterly BSRI movers, and see the new tool in action, over at the full updated BSRI interactive graphic.