The OECD uses the Country Risk Classification List to categorize countries based on their credit risk. This assessment focuses on the risk of a country defaulting on its financial obligations. The Organisation for Economic Co-operation and Development (OECD) maintains this list to set minimum premium rates. These rates apply to transactions supported by official export credits. The list provides a structured and consistent framework for evaluating the creditworthiness of various countries.

Methodology of Risk Classification

The Country Risk Classification system of OECD evaluates the credit risk of countries. It classifies them into different categories, from Category 0, which represents the lowest risk, to Category 7, indicating the highest risk. This classification follows a two-step methodology. First, it considers transfer and convertibility risk, which involves the likelihood of a country imposing restrictions on the movement of foreign exchange. Second, it accounts for cases of force majeure, such as natural disasters or political upheaval, which could affect a country’s ability to meet its financial obligations.

Regular Updates and Transparency

Country risk experts from Export Credit Agencies regularly update the list. These experts convene several times a year to review and update the classifications based on the latest economic and political developments. After each meeting, the OECD publishes the updated list on its website, ensuring public availability. This transparency ensures all stakeholders access the most current risk assessments.

Importance and Applications

The OECD Country Risk Classification List differs from sovereign risk classifications produced by private credit rating agencies. Private ratings are used for various investment decisions. In contrast, the OECD list sets minimum premium rates for official export credits. This distinction underscores its unique role in international trade finance. High-income OECD countries and euro area countries are not classified, as they are considered low-risk.

The list provides a standardized way of assessing country risk. Exporters, banks, and other organizations involved in international trade find this particularly useful. Offering a clear and consistent measure of risk, helps these entities make informed decisions about where to conduct business and how to price their products and services. Consequently, it ensures that official export credits reflect the level of risk involved, promoting fair and equitable trade practices.

Conclusion

In summary, the OECD Country Risk Classification List is a critical tool. It assesses the credit risk of countries and sets minimum premium rates for official export credits. Its structured methodology and regular updates make it a reliable resource for international trade stakeholders. By understanding and utilizing this list, businesses, and financial institutions can better navigate the complexities of global markets. They can manage the risks associated with international transactions more effectively.

_{A Country Risk Rating measures the risk of non-payment by companies in a given country. This risk is due to conditions or events outside any company’s control.}

Find the latest issued Country Risk Classification here-attached.