Drawing on a pool of more than 30 measures spanning financial data, surveys and political insights, the BlackRock Sovereign Risk Index (BSRI) [see below] provides investors with a framework for tracking sovereign credit risk in 50 countries.
The comments above and below are excerpts from an article by Richard Turnill (BlackRockBlog.com) which may have been enhanced – edited ([ ]) and abridged (…) – by munKNEE.com (Your Key to Making Money!) to provide you with a faster & easier read. Register to receive our bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner.)
The BSRI breaks down the data into four main categories that each count toward a country’s final BSRI score and ranking: Fiscal Space (40%), Willingness to Pay (30%), External Finance Position (20%) and Financial Sector Health (10%).
How it Works
- Fiscal Space—This category assesses if the fiscal dynamics of a particular country are on a sustainable path. It estimates how close a country is to breaking through a level of debt that will cause it to default (i.e., the concept of proximity to distress), and how large of an adjustment is necessary in order to achieve an appropriate debt/GDP level in the future (i.e., the concept of distance from stability).
- External Finance Position—The factors in this category measure how leveraged a country might be to macroeconomic trade and policy shocks outside of its control.
- Financial Sector Health—This category considers the degree to which the financial sector of a country poses a threat to its creditworthiness, were the sector were to be nationalized, and estimates the likelihood that the financial sector may require nationalization.
- Willingness to Pay—In this category we group factors which gauge if a country displays qualitative cultural and institutional traits that suggest both ability and willingness to pay off real debts.