Opalesque Industry Update – Sovereign debt risk is one of the biggest macro themes of 2011, and global asset management firm BlackRock announced on Tuesday the launch of the BlackRock Sovereign Risk Index, an index that will numerically rank countries according to “relevant fiscal, financial and institutional metrics.”|
While many measure sovereign debt risk according to debt-to-GDP ratio, the firm discussed in a white paper how other factors influence a country’s ability to pay its debt. These include the term structure and maturity profile of the debt. “If a government has sufficient time to decide how to restructure its debt or establish measures to cut costs, it is significantly less likely to be forced into making a difficult decision.” For example, the United Kingdom has a long-term debt structure. Greece did not.
The index, as released on Tuesday, ranks Norway at the top and unsurprisingly, Greece at the bottom. Norway benefits from “extremely low absolute levels of debt, a strong institutional context and very limited risks from external and financial shocks.” Joining Greece at the bottom are Portugal, Venezuela, Egypt and Italy.
BlackRock’s Index team points out that Greece and Ireland (both ranked toward the bottom of the Index) are in their individual places due to highly different factors – Ireland due to the size and quality of its banking sector and Greece as the result of government fiscal dynamics. “Therein lies one of the most valuable features of this index: the ability to explore in detail the drivers of a specific country’s rankings.” Says the firm.
The country rankings are as follows: