Country Default Spreads and Risk Premiums

Last updated: January 2014

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 equity risk premium, I start with a default spread, which I obtain in one of two ways:
(1) I use the local currency sovereign 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. For countries without a Moody's rating but with an S&P rating, I use the Moody's equivalent of the S&P rating. To get the default spreads by sovereign rating, I use the CDS spreads and compute the average CDS spread by rating. Using that number as a basis, I extrapolate for those ratings for which I have no CDS spreads.
(2) I start with the CDS spread for the country, if one is available and subtract out the US CDS spread, since my mature market premium is derived from the US market. That difference becomes the country spread. For the few countries that have CDS spreads that are lower than the US, I will get a negative number.
You can add just this default spread to the mature market premium to arrive at the total equity risk premium. I add an additional step. 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 my estimated risk premium of 5.0% for mature markets (obtained by looking at the implied premium for the S&P 500) to get the total risk premium.

For more details, download the excel spreadsheet that contains this data on my website: http://www.stern.nyu.edu/~adamodar/pc/datasets/ctryprem.xls
If you are interested in my approach to computing the equity risk premium, download my magnum opus (just kidding): http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2238064

Enter the current risk premium for a mature equity market 5.00% Updated January 1, 2014
Do you want to adjust the country default spread for the additional volatility of the equity market to get to a country premium? Yes    
If yes, enter the multiplier to use on the default spread (See worksheet for volatility numbers for selected emerging markets) 1.5    
Country Region  Local Currency Rating Rating-based Default Spread Total Equity Risk Premium Country Risk Premium CDS Default Spread Total Equity Risk Premium Country Risk Premium Has to be sorted in ascending order
Abu Dhabi Middle East Aa2 0.50% 5.75% 0.75% 1.00% 5.81% 0.81% Rating Default spread in basis points
Albania Eastern Europe & Russia B1 4.50% 11.75% 6.75% NA NA NA A1 70
Andorra Western Europe A3 1.20% 6.80% 1.80% NA NA NA A2 85
Angola Africa Ba3 3.60% 10.40% 5.40% NA NA NA A3 120
Argentina Central and South America B3 6.50% 14.75% 9.75% 14.73% 26.41% 21.41% Aa1 40
Armenia Eastern Europe & Russia Ba2 3.00% 9.50% 4.50% NA NA NA Aa2 50
Aruba Caribbean Baa1 1.60% 7.40% 2.40% NA NA NA Aa3 60
Australia Australia & New Zealand Aaa 0.00% 5.00% 0.00% 0.70% 5.36% 0.36% Aaa 0
Austria Western Europe Aaa 0.00% 5.00% 0.00% 0.74% 5.42% 0.42% B1 450
Azerbaijan Eastern Europe & Russia Baa3 2.20% 8.30% 3.30% NA NA NA B2 550
Bahamas Caribbean Baa1 1.60% 7.40% 2.40% NA NA NA B3 650
Bahrain Middle East Baa2 1.90% 7.85% 2.85% 2.97% 8.77% 3.77% Ba1 250
Bangladesh Asia Ba3 3.60% 10.40% 5.40% NA NA NA Ba2 300
Barbados Caribbean Ba1 2.50% 8.75% 3.75% NA NA NA Ba3 360
Belarus Eastern Europe & Russia B3 6.50% 14.75% 9.75% NA NA NA Baa1 160
Belgium Western Europe Aa3 0.60% 5.90% 0.90% 0.97% 5.77% 0.77% Baa2 190
Belize Central and South America Caa2 9.00% 18.50% 13.50% NA NA NA Baa3 220
Benin Africa B2 5.50% 13.25% 8.25% NA NA NA Caa1 750
Bermuda Caribbean Aa3 0.60% 5.90% 0.90% NA NA NA Caa2 900
Bolivia Central and South America Ba3 3.60% 10.40% 5.40% NA NA NA Caa3 1000
Bosnia and Herzegovina Eastern Europe & Russia B3 6.50% 14.75% 9.75% NA NA NA NR NA
Botswana Africa A2 0.85% 6.28% 1.28% NA NA NA
Brazil Central and South America Baa2 1.90% 7.85% 2.85% 2.53% 8.11% 3.11%
Bulgaria Eastern Europe & Russia Baa2 1.90% 7.85% 2.85% 1.89% 7.15% 2.15%
Burkina Faso Africa B2 5.50% 13.25% 8.25% NA NA NA
Cambodia Asia B2 5.50% 13.25% 8.25% NA NA NA
Cameroon Africa B2 5.50% 13.25% 8.25% NA NA NA
Canada North America Aaa 0.00% 5.00% 0.00% NA NA NA
Cape Verde Africa B2 5.50% 13.25% 8.25% NA NA NA
Cayman Islands Caribbean Aa3 0.60% 5.90% 0.90% NA NA NA
Chile Central and South America Aa3 0.60% 5.90% 0.90% 1.08% 5.93% 0.93%
China Asia Aa3 0.60% 5.90% 0.90% 1.33% 6.31% 1.31%
Colombia Central and South America Baa3 2.20% 8.30% 3.30% 1.74% 6.92% 1.92%
Cook Islands Australia & New Zealand B1 4.50% 11.75% 6.75% NA NA NA
Costa Rica Central and South America Baa3 2.20% 8.30% 3.30% 3.43% 9.46% 4.46%
Croatia Eastern Europe & Russia Ba1 2.50% 8.75% 3.75% 3.97% 10.27% 5.27%
Cuba Caribbean Caa1 7.50% 16.25% 11.25% NA NA NA
Curacao Caribbean B1 4.50% 11.75% 6.75% NA NA NA
Cyprus Western Europe Caa3 10.00% 20.00% 15.00% NA NA NA
Czech Republic Eastern Europe & Russia A1 0.70% 6.05% 1.05% 1.07% 5.92% 0.92%
Democratic Republic of Congo Africa B3 6.50% 14.75% 9.75% NA NA NA
Denmark Western Europe Aaa 0.00% 5.00% 0.00% 0.54% 5.12% 0.12%
Dominican Republic Caribbean B1 4.50% 11.75% 6.75% NA NA NA
Ecuador Central and South America Caa1 7.50% 16.25% 11.25% NA NA NA
Egypt Africa Caa1 7.50% 16.25% 11.25% NA NA NA
El Salvador Central and South America Ba3 3.60% 10.40% 5.40% NA NA NA
Estonia Eastern Europe & Russia A1 0.70% 6.05% 1.05% 0.89% 5.65% 0.65%
Fiji Asia B1 4.50% 11.75% 6.75% NA NA NA
Finland Western Europe Aaa 0.00% 5.00% 0.00% 0.48% 5.03% 0.03%
France Western Europe Aa1 0.40% 5.60% 0.60% 1.06% 5.90% 0.90%
Gabon Africa Ba3 3.60% 10.40% 5.40% NA NA NA
Georgia Eastern Europe & Russia Ba3 3.60% 10.40% 5.40% NA NA NA
Germany Western Europe Aaa 0.00% 5.00% 0.00% 0.56% 5.15% 0.15%
Ghana Africa B1 4.50% 11.75% 6.75% NA NA NA
Greece Western Europe Caa3 10.00% 20.00% 15.00% NA NA NA
Guatemala Central and South America Ba1 2.50% 8.75% 3.75% NA NA NA
Honduras Central and South America B2 5.50% 13.25% 8.25% NA NA NA
Hong Kong Asia Aa1 0.40% 5.60% 0.60% 0.91% 5.68% 0.68%
Hungary Eastern Europe & Russia Ba1 2.50% 8.75% 3.75% 3.08% 8.93% 3.93%
Iceland Western Europe Baa3 2.20% 8.30% 3.30% 2.19% 7.60% 2.60%
India Asia Baa3 2.20% 8.30% 3.30% 3.51% 9.58% 4.58%
Indonesia Asia Baa3 2.20% 8.30% 3.30% 3.19% 9.10% 4.10%
Ireland Western Europe Ba1 2.50% 8.75% 3.75% 1.69% 6.85% 1.85%
Isle of Man Western Europe Aa1 0.40% 5.60% 0.60% NA NA NA
Israel Middle East A1 0.70% 6.05% 1.05% 1.53% 6.61% 1.61%
Italy Western Europe Baa2 1.90% 7.85% 2.85% 2.11% 7.48% 2.48%
Jamaica Caribbean Caa3 10.00% 20.00% 15.00% NA NA NA
Japan Asia Aa3 0.60% 5.90% 0.90% 0.79% 5.50% 0.50%
Jordan Middle East B1 4.50% 11.75% 6.75% NA NA NA
Kazakhstan Eastern Europe & Russia Baa2 1.90% 7.85% 2.85% 2.26% 7.70% 2.70%
Kenya Africa B1 4.50% 11.75% 6.75% NA NA NA
Korea Asia Aa3 0.60% 5.90% 0.90% 0.97% 5.77% 0.77%
Kuwait Middle East Aa2 0.50% 5.75% 0.75% NA NA NA
Latvia Eastern Europe & Russia Baa2 1.90% 7.85% 2.85% 1.69% 6.85% 1.85%
Lebanon Middle East B1 4.50% 11.75% 6.75% 4.38% 10.88% 5.88%
Liechtenstein Western Europe Aaa 0.00% 5.00% 0.00% NA NA NA
Lithuania Eastern Europe & Russia Baa1 1.60% 7.40% 2.40% 1.77% 6.97% 1.97%
Luxembourg Western Europe Aaa 0.00% 5.00% 0.00% NA NA NA
Macao Asia Aa3 0.60% 5.90% 0.90% NA NA NA
Macedonia Eastern Europe & Russia Ba3 3.60% 10.40% 5.40% NA NA NA
Malaysia Asia A3 1.20% 6.80% 1.80% 1.65% 6.79% 1.79%
Malta Western Europe A3 1.20% 6.80% 1.80% NA NA NA
Mauritius Asia Baa1 1.60% 7.40% 2.40% NA NA NA
Mexico Central and South America Baa1 1.60% 7.40% 2.40% 1.49% 6.55% 1.55%
Moldova Eastern Europe & Russia B3 6.50% 14.75% 9.75% NA NA NA
Mongolia Asia B1 4.50% 11.75% 6.75% NA NA NA
Montenegro Eastern Europe & Russia Ba3 3.60% 10.40% 5.40% NA NA NA
Montserrat Caribbean Baa3 2.20% 8.30% 3.30% NA NA NA
Morocco Africa Ba1 2.50% 8.75% 3.75% 2.54% 8.12% 3.12%
Mozambique Africa B1 4.50% 11.75% 6.75% NA NA NA
Namibia Africa Baa3 2.20% 8.30% 3.30% NA NA NA
Netherlands Western Europe Aaa 0.00% 5.00% 0.00% 0.74% 5.42% 0.42%
New Zealand Australia & New Zealand Aaa 0.00% 5.00% 0.00% 0.80% 5.51% 0.51%
Nicaragua Central and South America B3 6.50% 14.75% 9.75% NA NA NA
Nigeria Africa Ba3 3.60% 10.40% 5.40% NA NA NA
Norway Western Europe Aaa 0.00% 5.00% 0.00% 0.29% 4.75% -0.26%
Oman Middle East A1 0.70% 6.05% 1.05% NA NA NA
Pakistan Asia Caa1 7.50% 16.25% 11.25% NA NA NA
Panama Central and South America Baa2 1.90% 7.85% 2.85% 1.64% 6.77% 1.77%
Papua New Guinea Asia B1 4.50% 11.75% 6.75% NA NA NA
Paraguay Central and South America Ba3 3.60% 10.40% 5.40% NA NA NA
Peru Central and South America Baa2 1.90% 7.85% 2.85% 1.88% 7.13% 2.13%
Philippines Asia Baa3 2.20% 8.30% 3.30% 1.81% 7.03% 2.03%
Poland Eastern Europe & Russia A2 0.85% 6.28% 1.28% 1.28% 6.23% 1.23%
Portugal Western Europe Ba3 3.60% 10.40% 5.40% 4.03% 10.36% 5.36%
Qatar Middle East Aa2 0.50% 5.75% 0.75% 1.03% 5.86% 0.86%
Ras Al Kaminah Middle East A2 0.85% 6.28% 1.28% NA NA NA
Republic of the Congo Africa Ba3 3.60% 10.40% 5.40% NA NA NA
Romania Eastern Europe & Russia Baa3 2.20% 8.30% 3.30% 2.61% 8.23% 3.23%
Russia Eastern Europe & Russia Baa1 1.60% 7.40% 2.40% 2.21% 7.63% 2.63%
Rwanda Africa B2 5.50% 13.25% 8.25% NA NA NA
Saudi Arabia Middle East Aa3 0.60% 5.90% 0.90% 1.09% 5.95% 0.95%
Senegal Africa B1 4.50% 11.75% 6.75% 0.90% 5.66% 0.66%
Serbia Eastern Europe & Russia B1 4.50% 11.75% 6.75% NA NA NA
Singapore Asia Aaa 0.00% 5.00% 0.00% NA NA NA
Slovakia Eastern Europe & Russia A2 0.85% 6.28% 1.28% 1.30% 6.26% 1.26%
Slovenia Eastern Europe & Russia Ba1 2.50% 8.75% 3.75% 2.75% 8.44% 3.44%
South Africa Africa Baa1 1.60% 7.40% 2.40% 2.75% 8.44% 3.44%
Spain Western Europe Baa3 2.20% 8.30% 3.30% 1.96% 7.25% 2.25%
Sri Lanka Asia B1 4.50% 11.75% 6.75% NA NA NA
St. Maarten Caribbean Baa1 1.60% 7.40% 2.40% NA NA NA
St. Vincent & the Grenadines Caribbean B2 5.50% 13.25% 8.25% NA NA NA
Suriname Central and South America Ba3 3.60% 10.40% 5.40% NA NA NA
Sweden Western Europe Aaa 0.00% 5.00% 0.00% 0.39% 4.90% -0.11%
Switzerland Western Europe Aaa 0.00% 5.00% 0.00% 0.56% 5.15% 0.15%
Taiwan Asia Aa3 0.60% 5.90% 0.90% NA NA NA
Thailand Asia Baa1 1.60% 7.40% 2.40% 1.86% 7.10% 2.10%
Trinidad and Tobago Caribbean Baa1 1.60% 7.40% 2.40% NA NA NA
Tunisia Africa Ba3 3.60% 10.40% 5.40% 4.57% 11.17% 6.17%
Turkey Western Europe Baa3 2.20% 8.30% 3.30% 2.89% 8.65% 3.65%
Uganda Africa B1 4.50% 11.75% 6.75% NA NA NA
Ukraine Eastern Europe & Russia Caa1 7.50% 16.25% 11.25% NA NA NA
United Arab Emirates Middle East Aa2 0.50% 5.75% 0.75% 2.88% 8.63% 3.63%
United Kingdom Western Europe Aa1 0.40% 5.60% 0.60% 0.57% 5.17% 0.17%
United States of America North America Aaa 0.00% 5.00% 0.00% 0.46% 5.00% 0.00%
Uruguay Central and South America Baa3 2.20% 8.30% 3.30% NA NA NA
Venezuela Central and South America Caa1 7.50% 16.25% 11.25% 10.80% 20.51% 15.51%
Vietnam Asia B2 5.50% 13.25% 8.25% 3.35% 9.34% 4.34%
Zambia Africa B1 4.50% 11.75% 6.75% NA NA NA

 

Last updated: January 2014

Aswath Damodaran