Country Default Spreads and Risk Premiums
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: 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 / Local Currency Rating / Rating-based Default Spread / Total Equity Risk Premium / Country 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 / Africa / Ba3 / 3.25% / 10.68% / 4.88% / NA / NA / NA
Argentina / 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 / Aa3 / 0.70% / 6.85% / 1.05% / 1.24% / 6.66% / 0.86%
Belize / Central and South America / Caa3 / 10.00% / 20.80% / 15.00% / NA / NA / NA
Bermuda / Caribbean / Aa2 / 0.50% / 6.55% / 0.75% / NA / NA / NA
Bolivia / 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 / Africa / A2 / 1.00% / 7.30% / 1.50% / NA / NA / NA
Brazil / 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 / Caribbean / Aa3 / 0.70% / 6.85% / 1.05% / NA / NA / NA
Chile / 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 America / Baa3 / 2.00% / 8.80% / 3.00% / 1.35% / 6.82% / 1.02%
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 / B1 / 4.00% / 11.80% / 6.00% / NA / NA / NA
Ecuador / Central and South America / Caa1 / 7.00% / 16.30% / 10.50% / NA / NA / NA
Egypt / Africa / B2 / 5.00% / 13.30% / 7.50% / 5.76% / 13.44% / 7.64%
El Salvador / 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 / Western Europe / Caa1 / 7.00% / 16.30% / 10.50% / NA / NA / NA
Guatemala / Central and South America / Ba1 / 2.40% / 9.40% / 3.60% / NA / NA / NA
Honduras / 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 / A1 / 0.85% / 7.08% / 1.28% / 1.61% / 7.21% / 1.41%
Italy / Western Europe / Baa2 / 1.75% / 8.43% / 2.63% / 3.03% / 9.34% / 3.54%
Jamaica / 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 / Baa1 / 1.50% / 8.05% / 2.25% / NA / NA / NA
Mexico / Central and South America / Baa1 / 1.50% / 8.05% / 2.25% / 1.36% / 6.84% / 1.04%
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 / Australia & New Zealand / Aaa / 0.00% / 5.80% / 0.00% / 0.72% / 5.88% / 0.07%
Nicaragua / 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 / Caa1 / 7.00% / 16.30% / 10.50% / 7.90% / 16.65% / 10.85%
Panama / Central and South America / Baa2 / 1.75% / 8.43% / 2.63% / 1.36% / 6.84% / 1.04%
Papua New Guinea / Asia / B1 / 4.00% / 11.80% / 6.00% / NA / NA / NA
Paraguay / Central and South America / B1 / 4.00% / 11.80% / 6.00% / NA / NA / NA
Peru / 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 / Africa / Baa1 / 1.50% / 8.05% / 2.25% / NA / NA / NA
St. Vincent & the Grenadines / 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 / Aaa / 0.00% / 5.80% / 0.00% / 0.67% / 5.80% / 0.00%
Uruguay / Central and South America / Baa3 / 2.00% / 8.80% / 3.00% / NA / NA / NA
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