Country Default Spreads and Risk Premiums

Last updated: January 2008

This table summarizes the latest bond ratings and appropriate default spreads for different countries. While you can use these numbers as rough estimates of country risk premiums, you may want to modify the premia to reflect the additonal risk of equity markets. 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 (based upon traded country bonds) over a default free government 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). I have used the emerging market average of 1.5 (equity markets are about 1.5 times more volatile than bond markets) to estimate country risk premium. I have added this to the historical premium for the US of about 4.79% to get the total risk premium.

Country Long-Term Rating Adj. Default Spread Total Risk Premium Country Risk Premium
Albania B1 350 10.04% 5.25%
Alderney (Channel Islands) Aaa 0 4.79% 0.00%
Andorra Aaa 0 4.79% 0.00%
Argentina B3 450 11.54% 6.75%
Armenia Ba2 250 8.54% 3.75%
Australia Aaa 0 4.79% 0.00%
Austria Aaa 0 4.79% 0.00%
Azerbaijan Ba1 200 7.79% 3.00%
Bahamas A1 70 5.84% 1.05%
Bahamas-Offshore Aaa 0 4.79% 0.00%
Bahrain A2 80 5.99% 1.20%
Bahrain-Offshore Aa3 60 5.69% 0.90%
Barbados A3 85 6.07% 1.28%
Belarus B1 350 10.04% 5.25%
Belgium Aa1 35 5.32% 0.53%
Belize Caa1 600 13.79% 9.00%
Bermuda Aaa 0 4.79% 0.00%
Bolivia B3 450 11.54% 6.75%
Bosnia & Herzogovina B2 400 10.79% 6.00%
Botswana A1 70 5.84% 1.05%
Brazil Ba1 200 7.79% 3.00%
Bulgaria Baa3 135 6.82% 2.03%
Cambodia B2 400 10.79% 6.00%
Canada Aaa 0 4.79% 0.00%
Cayman Islands Aa1 35 5.32% 0.53%
Cayman Islands Aaa 0 4.79% 0.00%
Chile A1 70 5.84% 1.05%
China A1 70 5.84% 1.05%
Colombia Baa3 135 6.82% 2.03%
Costa Rica Ba1 200 7.79% 3.00%
Croatia Baa1 100 6.29% 1.50%
Cuba Caa1 600 13.79% 9.00%
Cyprus A1 70 5.84% 1.05%
Czech Republic A1 70 5.84% 1.05%
Denmark Aaa 0 4.79% 0.00%
Dominican Republic B2 400 10.79% 6.00%
Ecuador B3 450 11.54% 6.75%
Egypt Baa3 135 6.82% 2.03%
El Salvador Baa2 115 6.52% 1.73%
Estonia A1 70 5.84% 1.05%
Eurozone Aaa 0 4.79% 0.00%
Fiji Islands Ba2 250 8.54% 3.75%
Finland Aaa 0 4.79% 0.00%
France Aaa 0 4.79% 0.00%
Germany Aaa 0 4.79% 0.00%
Greece A1 70 5.84% 1.05%
Guatemala Ba1 200 7.79% 3.00%
Guernsey (Channel Islands) Aaa 0 4.79% 0.00%
Honduras B2 400 10.79% 6.00%
Hong Kong Aa2 50 5.54% 0.75%
Hungary A2 80 5.99% 1.20%
Iceland Aaa 0 4.79% 0.00%
India Ba2 250 8.54% 3.75%
Indonesia Ba3 300 9.29% 4.50%
Ireland Aaa 0 4.79% 0.00%
Isle of Man Aaa 0 4.79% 0.00%
Israel A2 80 5.99% 1.20%
Italy Aa2 50 5.54% 0.75%
Jamaica Ba2 250 8.54% 3.75%
Japan A1 70 5.84% 1.05%
Jersey (Channel Island) Aaa 0 4.79% 0.00%
Jordan Baa3 135 6.82% 2.03%
Kazakhstan Baa1 100 6.29% 1.50%
Korea A2 80 5.99% 1.20%
Kuwait Aa2 50 5.54% 0.75%
Latvia A2 80 5.99% 1.20%
Lebanon B3 450 11.54% 6.75%
Liechtenstein Aaa 0 4.79% 0.00%
Lithuania A2 80 5.99% 1.20%
Luxembourg Aaa 0 4.79% 0.00%
Macao Aa3 60 5.69% 0.90%
Malaysia A3 85 6.07% 1.28%
Malta A2 80 5.99% 1.20%
Mauritius Baa2 115 6.52% 1.73%
Mexico Baa1 100 6.29% 1.50%
Moldova Caa1 600 13.79% 9.00%
Monaco Aaa 0 4.79% 0.00%
Mongolia B1 350 10.04% 5.25%
Morocco Ba1 200 7.79% 3.00%
Netherlands Aaa 0 4.79% 0.00%
New Zealand Aaa 0 4.79% 0.00%
Nicaragua B3 450 11.54% 6.75%
Norway Aaa 0 4.79% 0.00%
Oman A2 80 5.99% 1.20%
Pakistan B1 350 10.04% 5.25%
Panama Ba1 200 7.79% 3.00%
Panama-Offshore Banks Aa2 50 5.54% 0.75%
Papua New Guinea B1 350 10.04% 5.25%
Paraguay Caa1 600 13.79% 9.00%
Peru Baa3 135 6.82% 2.03%
Philippines B1 350 10.04% 5.25%
Poland A2 80 5.99% 1.20%
Portugal Aa2 50 5.54% 0.75%
Qatar Aa2 50 5.54% 0.75%
Romania Baa3 135 6.82% 2.03%
Russia Baa2 115 6.52% 1.73%
San Marino Aaa 0 4.79% 0.00%
Sark (Channel Islands) Aaa 0 4.79% 0.00%
Saudi Arabia A1 70 5.84% 1.05%
Singapore Aaa 0 4.79% 0.00%
Slovakia A1 70 5.84% 1.05%
Slovenia Aa2 50 5.54% 0.75%
South Africa A2 80 5.99% 1.20%
Spain Aaa 0 4.79% 0.00%
St. Vincent B1 350 10.04% 5.25%
Suriname Ba3 300 9.29% 4.50%
Sweden Aaa 0 4.79% 0.00%
Switzerland Aaa 0 4.79% 0.00%
Taiwan Aa3 60 5.69% 0.90%
Thailand Baa1 100 6.29% 1.50%
Trinidad & Tobago Baa1 100 6.29% 1.50%
Tunisia Baa2 115 6.52% 1.73%
Turkey Ba3 300 9.29% 4.50%
Turkmenistan B2 400 10.79% 6.00%
Ukraine B1 350 10.04% 5.25%
United Arab Emirates Aa2 50 5.54% 0.75%
United Kingdom Aaa 0 4.79% 0.00%
United States Aaa 0 4.79% 0.00%
Uruguay B1 350 10.04% 5.25%
Venezuela B1 350 10.04% 5.25%
Vietnam Ba3 300 9.29% 4.50%

 

Last updated: January 2008

Aswath Damodaran