OECD country risk classification
A ranking of countries from 0 to 7 according to the likelihood that they will service their external debt, set by public export credit agency experts, which fixes the minimum premiums for public guarantees.
Under the Arrangement on export credits, experts from the participating countries' public agencies regularly classify countries into eight categories, from 0 for the lowest risk to 7 for the highest. The classification measures country risk in the credit sense: the likelihood that the country will repay its external debt, and the transfer and convertibility risk that would stop a solvent debtor from paying in foreign currency. It combines a quantitative model based on payment experience and the financial and economic situation with a qualitative assessment of political risks. High-income OECD and euro area countries are generally left unclassified, their risk being considered comparable to the market's. The category has a direct consequence: it sets the minimum premium a public agency must charge to guarantee a credit on that country, and therefore the cost of exporting. For the private underwriter, it is a public benchmark of the consensus view of a country, revised several times a year, whose category changes signal a turning point the market immediately builds into its terms.
Textbook case: when a country moves from category 5 to category 7 after defaulting on its debt, the minimum premium for a public guarantee on a seven-year credit to that country rises by several percentage points of the amount financed, and many exporters give up selling there on credit. Dated benchmark: the classification is kept by the Participants to the OECD Arrangement on Officially Supported Export Credits, in force since April 1978, and reviewed at their meetings several times a year; the current list is published on the OECD website.
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