Country Risk Indices


Summarise the available country risk indices. Identify whether they assess political, social, economic and/or other risks. Where possible identify the strengths and weaknesses of these tools for investors and policy makers.


Key finding: There are many country risk indices available, primarily produced by private companies. Different risk indices use different combinations of political, social, economic, environmental and other factors, but there is no universally accepted methodology for assessing risk. Comparison between methodologies is made difficult by the relative opacity of the methodologies. Most risk indices are commercial products. Consequently, the majority of companies that produce risk assessments do not make their methodology and sources easily accessible. There are also risk assessment methodologies that are tailored to specific businesses or in relation to the types of activities undertaken.

Amongst the country risk indices from private companies, some of the most notable risks assessors are the ratings from the ‘big three’ credit risk rating agencies: Standard and Poor’s, Fitch, and Moody’s. These credit risk agencies provide credit ratings for debt instruments, but also provide credit ratings for the debt issuers, which include sovereign countries based on a broad range of risk factors.

The most widely used country risk indices are the Euromoney index and the International Country Risk Group (ICRG) index. However, these do not accurately identify the political, economic and/or financial factors that contributed to the recent global economic crisis. Amongst these indices, it is, thus, hard to draw comparisons and identify the most useful indices. International organisations and government agencies do not produce country risk ratings themselves, but do make use of existing ratings from commercial providers. Government agencies undertake risk assessments, but these are primarily for internal or ‘enterprise-wide’ risk rather than risk for investing.

Development finance institutions need to take country risk into account. For example, the CDC Group, a UK development finance institution, largely leaves risk analysis to in-country fund managers who work within parameters outlined in the CDC Group investment code and legal agreements.