Euromoney's Country Ranking: The Winner Is...East and Central Europe!

In Euromoney's semiannual ranking of country creditworthiness, the winners are the emerging economies of East and Central Europe. Southeast Asian economies are looking riskier, however, as debt ratios worsen and monetary instability spreads. The only rising economies in Asia are in Indochina. Vietnam rises three places to 63, partly as a result of its membership in the Association of Southeast Asian Nations (ASEAN); it is also expected to debut in the international bond market next year. Even Cambodia rises two places, although its ranking remains lowly at 109.

The place gainers are mostly in Eastern and Central Europe, as the reform programs put in place since the fall of communism begin to bear fruit. The biggest riser in the region is Slovenia, which is now rated as fractionally more creditworthy than the Czech Republic. Slovenia's economy is expected to grow more than 4 percent a year, both this year and next. Poland, however, is forecast to produce the fastest growth in Central Europe this year and next, at more than 5 percent a year. As a result, Poland moves up three places. Russia, despite its continuing economic problems, is also rapidly improving its credit rating. As recently as last September, it ranked at 142. By March it had risen to 100; now it is 86. Boris Yeltsin's reelection removed some of the political uncertainty, although his impending heart surgery—announced after our poll was conducted—will inevitably increase it again.

The Baltic States have also improved their rankings, particularly Lithuania, the highest ranked of the three, which rises 26 places to 59. All three countries are now in the international bond market. Their economies are looking healthy, and all are expected to show solid growth next year.

Methodology

The Euromoney country risk assessment uses analytical indicators, credit indicators and market indicators, in nine categories. The weighted scores are calculated as follows: the highest score in each category receives the full mark for the weighting; the lowest receives zero. In between, figures are calculated according to the formula: final score = weighting/(maximum score-minimum score) x (score-minimum score). The country risk ranking shows the final scores after weighting.

• Economic data (25 percent weighting). Taken from the Euromoney 1996-97 global economic projections. Each country scores the average of the evaluations for 1996 and 1997.

• Political risk (25 percent). Euromoney polled risk analysts, risk insurance brokers, and bank credit officers. They were asked to give each country a score between zero and 10 (10 indicates no risk of nonpayment; zero indicates that there is no chance of payments being made).

• Debt indicators (10 percent). Scores are calculated using the following ratios from the World Bank's World Debt Tables 1995-96: (a) debt service to exports (b) current account balance to GNP and (c) external debt to GNP. Figures are the latest available, mostly for 1993.

• Debt in default or rescheduled debt (10 percent). A score between zero and 10, based on the amount of debt in default or debt that has been rescheduled over the past three years. Ten indicates no nonpayments; zero indicates all in default or rescheduled. Scores are based on the World Debt Tables 1995-96 and Euromoney estimates for countries that do not report under the debtor reporting system.

• Credit ratings (10 percent). The average of sovereign ratings from Moody's, Standard & Poor's, and IBCA.

• Access to bank finance (5 percent). Calculated from disbursements of private, long-term, unguaranteed loans as a percentage of GNP. OECD countries that do not report under the debtor reporting system receive a score of 5. Scores are based on the World Debt Tables 1995-96.

• Access to short-term finance (5 percent). Scores are calculated taking into account coverage available from the U.S. Exim Bank, the U.K. NCM and Export Credits Guarantee Department (ECGD), and membership in OECD consensus groups.

• Access to international bond and syndicated loan markets (5 percent). Reflects Euromoney's analysis of how easily the country might tap the markets now, based largely on issues since January 1995. A score of 5 means no problem whatsoever; 4, no problem on 95 percent of occasions; 3, usually no problem; 2, possible problem (depending on conditions); 1, possible in some circumstances; zero, impossible.

• Access to and discount on forfaiting (5 percent). Reflects the average maximum tenor available and the forfaiting spread over riskless countries, such as the United States, based on the average maximum tenor minus the spread. Countries for which forfaiting is not available score zero. Data were supplied by Morgan Grenfell Trade Finance, West Merchant Bank, the London Forfaiting Company, Standard Bank, and ING Capital.