U.S. Only Ranks #13 In Sovereign Credit Risk - Where Does Your Country Rank?

Written by Richard Turnill

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 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, where 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.

BRSI country rankings by quintile

Read more on the U.S.’s sovereign risk profile and on how the various countries stack up in our full BSRI interactive graphic, which includes country details and side-by-side country comparisons.

[Incidentally, the] Sovereign Risk Index...shows a recovery in the United States’ sovereign risk profile over the past four years. The U.S.’s “Fiscal Space” score component—our measure of fiscal sustainability—has flipped to a sizable positive from a drag, and the country’s overall ranking has gradually improved. See the chart below.

(Click on image to enlarge)

The improvement in the country’s overall ranking is a product of:

• lower spending,
• an apparent slowdown in health care cost increases in recent years,
• Low-interest rates reducing debt servicing costs
• and steady, if historically subdued, economic growth.

It means the U.S. economy appears to be in much stronger shape than it was during the last presidential election campaign of 2012, and we expect fiscal policy to become less of an economic drag going forward over the near term.

[That being said, however,] the U.S. fiscal turnaround may be fleeting...

• Slower economic growth as aging baby boomers exit the workforce,
• and growing projected health care and Social Security outlays

will likely lead to rising budget deficits and debt-to-GDP levels over the coming decade under current policies, 2016 Congressional Budget Office (CBO) projections suggest.

[As noted above,] the U.S. currently ranks 13th out of the 50 countries we track, an overall ranking unchanged since the same quarter a year ago. According to our most recent quarterly ranking update, it currently scores most highly on Willingness to Pay and weakest in External Finance. [As such,] the U.S. sovereign risk profile still has room for improvement...