In 1997, The Participants to the Arrangement on Officially Supported Export Credits (The Participants to the Arrangement), established a methodology for assessing country credit risk and classifying countries in connection with their agreement on minimum premium fees for official export credits(1)
The Participants’ country risk classifications are one of the most fundamental building blocks of the Arrangement rules on minimum premium rates for credit risk. They are produced solely for the purpose of setting minimum premium rates for transactions supported according to the Arrangement and they are made public so that any country that is not an OECD Member or a Participant to the Arrangement may observe the rules of the Arrangement if they so choose. Neither the Participants to the Arrangement nor the OECD Secretariat endorse nor encourage their use for any other purpose.
The country risk classifications are meant to reflect country risk. Under the Participants’ system, country risk encompasses transfer and convertibility risk (i.e. the risk a government imposes capital or exchange controls that prevent an entity from converting local currency into foreign currency and/or transferring funds to creditors located outside the country) and cases of force majeure (e.g. war, expropriation, revolution, civil disturbance, floods, earthquakes).
The country risk classifications are not sovereign risk classifications and should not, therefore, be compared with the sovereign risk classifications of private credit rating agencies (CRAs). Conceptually, they are more similar to the "country ceilings" that are produced by some of the major CRAs.
According to the rules of the Arrangement, two groups of countries are not classified. The first group is not classified for administrative purposes and is comprised of very small countries that do not generally receive official export credit support. For such countries, Participants are free to apply the country risk classification which they deem appropriate.
The second group of countries is comprised of High Income OECD countries and other High Income Euro-zone countries. Transactions involving obligors in these countries (and any countries classified in Category 0) are subject to the market pricing disciplines set out in Article 24c) and Annex X of the Arrangement.
All other countries (and a limited number of supranational multilateral/regional financial institutions) are classified into one of eight categories (0-7) through the application of a two-step methodology:
A quantitative model constructed specifically for this purpose: The Country Risk Assessment Model (CRAM) produces a quantitative assessment of country credit risk based on three groups of risk indicators (the payment experience reported by the Participants, the financial situation and the economic situation based primarily on IMF indicators).
A qualitative assessment of the CRAM results by country risk experts from OECD Members in order to integrate factors not fully taken into account by the model. This could lead to an adjustment (upwards or downwards) of a country compared to the CRAM results. Any adjustment has to attract a consensus among Experts.
The group of country risk experts meet several times a year. These meetings are organised so as to guarantee that every country is reviewed whenever a fundamental change is observed and at least once a year. The list of country risk classifications is publically available and published on the OECD website after each meeting; however the meetings themselves and the exchanges and deliberations that take place are strictly confidential.
(1) Accordingly, no historical classifications are available for prior years.
Last updated on 21 December 2017