Question

How will you measure the political risk in a country?

Answer in at least 150 words.

Answer 1

Political risk is measured by the likelihood of a sovereign entity or its designate to confiscate goods, seize property for public use, nationalize companies or industries, deprive owners of assets to benefits or dividends, or fail to honor their obligations or pay their debts.

This likelihood will become part of the sovereign debt rating issued by a rating agency and also part of the price discovery in the bonds issued by a sovereign entity if they are traded in the capital market.

In the absence or in addition to price discovery or public due diligence for purposes of credit rating, multilateral (e.g. MIGA) and national export credit agencies will take a view on measuring this risk, as will supranational agencies like the IMF or World Bank. These institutions sometimes share these views in one way or another.

There are several commercial political risk analysis firms who also privately rate political risks for a subscription fee.