Country Default Spreads and Risk Premiums
Aswath Damodaran - Last updated: January 2013
This table summarizes the latest bond ratings and appropriate default spreads for different countries. While you can use these numbers
as rough estimates of country risk premiums, you may want to modify the premia to reflect the additional risk of equity markets. To
estimate the long term country equity risk premium, I start with a default spread, which I obtain in one of two ways:
(1) I use the local currency sovereign rating (from Moody's: www.moodys.com) and estimate the default spread for that rating (based
upon traded country bonds) over a default free government bond rate.
(2) I start with the CDS spread for the country, if one is available and subtract out the US CDS spread, since my mature market
premium is derived from the US market. That difference becomes the country spread. For the few countries that have CDS spreads
that are lower than the US, I will get a negative number.
You can add just this default spread to the mature market premium to arrive at the total equity risk premium. I add an additional step.
In the short term especially, the equity country risk premium is likely to be greater than the country's default spread. You can estimate
an adjusted country risk premium by multiplying the default spread by the relative equity market volatility for that market (Std dev in
country equity market/Std dev in country bond). I have used the emerging market average of 1.5 (equity markets are about 1.5 times
more volatile than bond markets) to estimate country risk premium. I have added this to my estimated risk premium of 5.8% for
mature markets (obtained by looking at the implied premium for the S&P 500) to get the total risk premium.
Country
Region
Sovereign Rating based Equity Risk Premiums
RatingLocal
based
Total
Country
Currency
Default
Equity Risk
Risk
Rating
Spread
Premium
Premium
Sovereign CDS based Equity Risk Premium
CDS Default
Spread
Total Equity
Risk
Premium
Country
Risk
Premium
Albania
Eastern Europe & Russia
B1
4.00%
11.80%
6.00%
NA
NA
NA
Angola
Ba3
3.25%
10.68%
4.88%
NA
NA
NA
Argentina
Africa
Central and South
America
B3
6.00%
14.80%
9.00%
13.07%
24.40%
18.60%
Armenia
Eastern Europe & Russia
Ba2
2.75%
9.93%
4.13%
NA
NA
NA
Australia
Australia & New Zealand
Aaa
0.00%
5.80%
0.00%
0.86%
6.09%
0.29%
Austria
Western Europe
Aaa
0.00%
5.80%
0.00%
0.79%
5.98%
0.18%
Azerbaijan
Eastern Europe & Russia
Baa3
2.00%
8.80%
3.00%
NA
NA
NA
Bahamas
Caribbean
Baa1
1.50%
8.05%
2.25%
NA
NA
NA
Bahrain
Middle East
Baa1
1.50%
8.05%
2.25%
2.52%
8.58%
2.78%
Bangladesh
Asia
Ba3
3.25%
10.68%
4.88%
NA
NA
NA
Barbados
Caribbean
Baa3
2.00%
8.80%
3.00%
NA
NA
NA
Belarus
Eastern Europe & Russia
B3
6.00%
14.80%
9.00%
NA
NA
NA
Belgium
Western Europe
Central and South
America
Aa3
0.70%
6.85%
1.05%
1.24%
6.66%
0.86%
Caa3
10.00%
20.80%
15.00%
NA
NA
NA
Aa2
0.50%
6.55%
0.75%
NA
NA
NA
Bolivia
Caribbean
Central and South
America
Ba3
3.25%
10.68%
4.88%
NA
NA
NA
Bosnia and Herzegovina
Eastern Europe & Russia
B3
6.00%
14.80%
9.00%
NA
NA
NA
Botswana
A2
1.00%
7.30%
1.50%
NA
NA
NA
Brazil
Africa
Central and South
America
Baa2
1.75%
8.43%
2.63%
1.44%
6.96%
1.16%
Bulgaria
Eastern Europe & Russia
Baa2
1.75%
8.43%
2.63%
1.41%
6.91%
1.11%
Cambodia
Asia
B2
5.00%
13.30%
7.50%
NA
NA
NA
Canada
North America
Aaa
0.00%
5.80%
0.00%
NA
NA
NA
Cayman Islands
Aa3
0.70%
6.85%
1.05%
NA
NA
NA
Chile
Caribbean
Central and South
America
Aa3
0.70%
6.85%
1.05%
0.99%
6.28%
0.48%
China
Asia
Aa3
0.70%
6.85%
1.05%
1.02%
6.33%
0.53%
Colombia
Central and South
Baa3
2.00%
8.80%
3.00%
1.35%
6.82%
1.02%
Belize
Bermuda
America
Costa Rica
Central and South
America
Baa3
2.00%
8.80%
3.00%
3.91%
10.66%
4.86%
Croatia
Eastern Europe & Russia
Baa3
2.00%
8.80%
3.00%
2.99%
9.28%
3.48%
Cuba
Caribbean
Caa1
7.00%
16.30%
10.50%
NA
NA
NA
Cyprus
Western Europe
B3
6.00%
14.80%
9.00%
6.55%
14.62%
8.82%
Czech Republic
Eastern Europe & Russia
A1
0.85%
7.08%
1.28%
0.89%
6.13%
0.33%
Denmark
Western Europe
Aaa
0.00%
5.80%
0.00%
0.69%
5.83%
0.03%
Dominican Republic
Caribbean
Central and South
America
B1
4.00%
11.80%
6.00%
NA
NA
NA
Caa1
7.00%
16.30%
10.50%
NA
NA
NA
Ecuador
Egypt
B2
5.00%
13.30%
7.50%
5.76%
13.44%
7.64%
El Salvador
Africa
Central and South
America
Ba3
3.25%
10.68%
4.88%
NA
NA
NA
Estonia
Eastern Europe & Russia
A1
0.85%
7.08%
1.28%
0.95%
6.22%
0.42%
Fiji Islands
Asia
B1
4.00%
11.80%
6.00%
NA
NA
NA
Finland
Western Europe
Aaa
0.00%
5.80%
0.00%
0.60%
5.70%
-0.11%
France
Western Europe
Aa1
0.25%
6.18%
0.38%
1.44%
6.96%
1.16%
Georgia
Eastern Europe & Russia
Ba3
3.25%
10.68%
4.88%
NA
NA
NA
Germany
Western Europe
Aaa
0.00%
5.80%
0.00%
0.82%
6.03%
0.23%
Greece
Caa1
7.00%
16.30%
10.50%
NA
NA
NA
Ba1
2.40%
9.40%
3.60%
NA
NA
NA
Honduras
Western Europe
Central and South
America
Central and South
America
B2
5.00%
13.30%
7.50%
NA
NA
NA
Hong Kong
Asia
Aa1
0.25%
6.18%
0.38%
1.03%
6.34%
0.54%
Hungary
Eastern Europe & Russia
Ba1
2.40%
9.40%
3.60%
3.16%
9.54%
3.74%
Iceland
Western Europe
Baa3
2.00%
8.80%
3.00%
2.16%
8.04%
2.24%
India
Asia
Baa3
2.00%
8.80%
3.00%
NA
NA
NA
Indonesia
Asia
Baa3
2.00%
8.80%
3.00%
1.81%
7.51%
1.71%
Ireland
Western Europe
Ba1
2.40%
9.40%
3.60%
2.54%
8.61%
2.81%
Isle of Man
Financial Center
Aaa
0.00%
5.80%
0.00%
NA
NA
NA
Israel
Middle East
Italy
Western Europe
Jamaica
Guatemala
A1
0.85%
7.08%
1.28%
1.61%
7.21%
1.41%
Baa2
1.75%
8.43%
2.63%
3.03%
9.34%
3.54%
Caribbean
B3
6.00%
14.80%
9.00%
NA
NA
NA
Japan
Asia
Aa3
0.70%
6.85%
1.05%
1.32%
6.78%
0.98%
Jordan
Middle East
Ba2
2.75%
9.93%
4.13%
NA
NA
NA
Kazakhstan
Eastern Europe & Russia
Baa2
1.75%
8.43%
2.63%
1.97%
7.75%
1.95%
Kenya
Africa
B1
4.00%
11.80%
6.00%
NA
NA
NA
Korea
Asia
Aa3
0.70%
6.85%
1.05%
1.13%
6.49%
0.69%
Kuwait
Middle East
Aa2
0.50%
6.55%
0.75%
NA
NA
NA
Latvia
Eastern Europe & Russia
Baa3
2.00%
8.80%
3.00%
1.70%
7.35%
1.55%
Lebanon
Middle East
B1
4.00%
11.80%
6.00%
4.72%
11.88%
6.08%
Lithuania
Eastern Europe & Russia
Baa1
1.50%
8.05%
2.25%
1.58%
7.17%
1.37%
Luxembourg
Western Europe
Aaa
0.00%
5.80%
0.00%
NA
NA
NA
Macao
Asia
Aa3
0.70%
6.85%
1.05%
NA
NA
NA
Malaysia
Asia
A3
1.15%
7.53%
1.73%
1.14%
6.51%
0.71%
Malta
Western Europe
A3
1.15%
7.53%
1.73%
NA
NA
NA
Mauritius
Africa
Central and South
America
Baa1
1.50%
8.05%
2.25%
NA
NA
NA
Baa1
1.50%
8.05%
2.25%
1.36%
6.84%
1.04%
Mexico
Moldova
Eastern Europe & Russia
B3
6.00%
14.80%
9.00%
NA
NA
NA
Mongolia
Asia
B1
4.00%
11.80%
6.00%
NA
NA
NA
Montenegro
Eastern Europe & Russia
Ba3
3.25%
10.68%
4.88%
NA
NA
NA
Morocco
Africa
Ba1
2.40%
9.40%
3.60%
2.79%
8.98%
3.18%
Namibia
Africa
Baa3
2.00%
8.80%
3.00%
NA
NA
NA
Netherlands
Western Europe
Aaa
0.00%
5.80%
0.00%
0.83%
6.04%
0.24%
New Zealand
Aaa
0.00%
5.80%
0.00%
0.72%
5.88%
0.07%
Nicaragua
Australia & New Zealand
Central and South
America
B3
6.00%
14.80%
9.00%
NA
NA
NA
Nigeria
Africa
Ba3
3.25%
10.68%
4.88%
NA
NA
NA
Norway
Western Europe
Aaa
0.00%
5.80%
0.00%
0.41%
5.41%
-0.39%
Oman
Middle East
A1
0.85%
7.08%
1.28%
NA
NA
NA
Pakistan
Asia
Central and South
America
Caa1
7.00%
16.30%
10.50%
7.90%
16.65%
10.85%
Baa2
1.75%
8.43%
2.63%
1.36%
6.84%
1.04%
B1
4.00%
11.80%
6.00%
NA
NA
NA
B1
4.00%
11.80%
6.00%
NA
NA
NA
Peru
Asia
Central and South
America
Central and South
America
Baa2
1.75%
8.43%
2.63%
1.38%
6.87%
1.07%
Philippines
Asia
Ba1
2.40%
9.40%
3.60%
1.59%
7.18%
1.38%
Poland
Eastern Europe & Russia
A2
1.00%
7.30%
1.50%
1.30%
6.75%
0.95%
Portugal
Western Europe
Ba3
3.25%
10.68%
4.88%
4.93%
12.19%
6.39%
Qatar
Middle East
Aa2
0.50%
6.55%
0.75%
1.28%
6.72%
0.92%
Romania
Eastern Europe & Russia
Baa3
2.00%
8.80%
3.00%
2.81%
9.01%
3.21%
Russia
Eastern Europe & Russia
Baa1
1.50%
8.05%
2.25%
1.82%
7.53%
1.73%
Saudi Arabia
Middle East
Aa3
0.70%
6.85%
1.05%
0.78%
5.97%
0.17%
Senegal
Africa
B1
4.00%
11.80%
6.00%
NA
NA
NA
Singapore
Asia
Aaa
0.00%
5.80%
0.00%
NA
NA
NA
Slovakia
Eastern Europe & Russia
A2
1.00%
7.30%
1.50%
1.42%
6.93%
1.13%
Slovenia
Eastern Europe & Russia
Baa2
1.75%
8.43%
2.63%
2.59%
8.68%
2.88%
South Africa
Africa
Baa1
1.50%
8.05%
2.25%
2.03%
7.84%
2.04%
Spain
Western Europe
Baa3
2.00%
8.80%
3.00%
3.14%
9.51%
3.71%
Sri Lanka
Asia
B1
4.00%
11.80%
6.00%
NA
NA
NA
St. Maarten
St. Vincent & the
Grenadines
Africa
Baa1
1.50%
8.05%
2.25%
NA
NA
NA
Caribbean
B2
5.00%
13.30%
7.50%
NA
NA
NA
Suriname
Caribbean
Ba3
3.25%
10.68%
4.88%
NA
NA
NA
Sweden
Western Europe
Aaa
0.00%
5.80%
0.00%
0.41%
5.41%
-0.39%
Switzerland
Western Europe
Aaa
0.00%
5.80%
0.00%
0.76%
5.94%
0.14%
Taiwan
Asia
Aa3
0.70%
6.85%
1.05%
NA
NA
NA
Thailand
Asia
Baa1
1.50%
8.05%
2.25%
1.43%
6.94%
1.14%
Trinidad and Tobago
Caribbean
Baa1
1.50%
8.05%
2.25%
NA
NA
NA
Tunisia
Africa
Baa3
2.00%
8.80%
3.00%
4.21%
11.11%
5.31%
Turkey
Western Europe
Ba1
2.40%
9.40%
3.60%
1.79%
7.48%
1.68%
Ukraine
Eastern Europe & Russia
B3
6.00%
14.80%
9.00%
6.51%
14.56%
8.76%
United Arab Emirates
Middle East
Aa2
0.50%
6.55%
0.75%
NA
NA
NA
United Kingdom
Western Europe
Aaa
0.00%
5.80%
0.00%
0.74%
5.91%
0.11%
United States of America
North America
Central and South
America
Aaa
0.00%
5.80%
0.00%
0.67%
5.80%
0.00%
Baa3
2.00%
8.80%
3.00%
NA
NA
NA
Panama
Papua New Guinea
Paraguay
Uruguay
Venezuela
Central and South
America
B1
4.00%
11.80%
6.00%
6.55%
14.62%
8.82%
Vietnam
Asia
B2
5.00%
13.30%
7.50%
2.74%
8.91%
3.11%
Zambia
Africa
B1
4.00%
11.80%
6.00%
NA
NA
NA