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Trackers

CFR Sovereign Risk Tracker

By experts and staff

Updated
  • Benn SteilCFR Expert
    Senior Fellow and Director of International Economics

The CFR Sovereign Risk Tracker can be used to gauge the vulnerability of emerging markets to default on external debt.1 On the map below, the darker the red the more vulnerable the country. The CFR Sovereign Risk Index value suggests the likelihood of a country defaulting within five years. The highest value, 10, means that the country has a 50 percent or higher chance of defaulting. (Three Tracker countries are in actual default: Belarus, Lebanon, and Venezuela.) Mouse over (or tap) the map to see how each country scores on the Index and eight other indicators of risk.

In addition to the CFR Sovereign Risk Index, eight other indicators of risk are described below. For each measure, we use the most recent value available in the last eight quarters.

1. Current account balance as a share of GDP. A country that imports more than it exports funds the difference with foreign capital inflows. Should these flows dry up, the country would have to pay for imports with foreign exchange reserves.

2. External debt as a share of GDP. Principal and interest payments on external debt must be met with capital inflows or reserve sales.

3. Reserve-adequacy ratio. A country’s short-term external financing need (the current account deficit plus short-term external debt) is expressed as a share of foreign exchange reserves in order to assess how long a country could survive a sudden stop in capital inflows.

4. Government debt as a share of GDP. High levels of government debt reduce investor confidence in debt-service capacity.

5. Fiscal balance as a share of GDP. Government budget deficits increase the amount of government debt outstanding. 

6. Foreign currency denominated debt as a share of GDP. A country with a high level of foreign currency denominated debt is vulnerable to exchange-rate moves, as the value of this debt rises when the local currency falls.

7. Index of political instability. Constructed by the World Bank, this index measures the likelihood of political instability or politically motivated violence: it ranges from 3 (most stable) to -3 (least stable). Instability typically prompts investors to withdraw money.

8. Credit default swap (CDS) spread. The CDS spread is a market-based measure of a country’s level of default risk.

For the countries with a CDS spread, we use it to determine the CFR Sovereign Risk Index value. For those without a CDS spread, we use S&P and Moody’s Sovereign Ratings or political-risk indicators. This method closely approximates CDS spreads for those countries with spreads.2

Please also visit our Global Monetary Policy Tracker, Global Imbalances Tracker, Global Growth Tracker, Global Trade Tracker, Global Energy Tracker, and Central Bank Currency Swaps Tracker.