Export Credit Risk Classifications Raised For Bahrain, UAE And Yemen

Export Credit Risk Classifications Raised For Bahrain, UAE And Yemen

In the latest country classifications, published by the OECD, changes have been made for Bahrain, UAE and Yemen, suggesting that they pose a higher risk. Bahrain and UAE have been marked up from 2 to 3, while Yemen climbs from 6 to 7 (see table) in what are described as “Country Risk Classifications of the Participants to the Arrangement on Officially Supported Export Credits.” The only other country classification to be changed at this time was Indonesia, which improved from 5 to 4. The system ranks countries into eight categories, with 0 representing the least risky and 7 the highest. The US, for example, is ranked 0 (for a full list see www.oecd.org).

The classifications maintained as part of the rules on minimum pricing for government backed export credit agencies (ECAs) so that they are on a level playing field regarding risk premiums, and are published four times per year. They are only meant to be used by to set minimum risk premium rates, and are determined by the country experts, usually country risk economists from authorities responsible for export credit policies in OECD member governments.

The OECD acts as a secretariat, and only the outcome of the meetings, in the form of the country risk classification table, is published – the reasons for changes are not made public. The rankings are not intended to be used more broadly, an OECD official told MEES. He stressed that they are not aimed at assessing country risk, in a manner similar to the international rating agencies, but instead try to achieve multi-lateral objectives for government lending.

While hiking the levels for Bahrain, UAE and Yemen will raise ECA premiums for the countries, in the wake of the financial crisis the gap between government sector and private sector risk has widened substantially, and ECA pricing is therefore very competitive. “In some cases the financial crisis has made the terms of ECAs the best deal in town,” noted the official. As a result, demand for the funding, cover and guarantees provided by ECAs has climbed globally in step with the contraction of private funding. In line with world trends, their use on MENA projects has jumped markedly (MEES, 22 March).

MENA Country Risk Classifications (As of 2 April 2010)

Algeria 3	Iraq 7	Libya 6	Qatar 2	Tunisia 3
Bahrain 3*	Jordan 5	Mauritania 7	Saudi Arabia 2	UAE 3*
Egypt 4	Kuwait 2	Morocco 3	Sudan 7	West Bank/Gaza**
Iran 6	Lebanon 7	Oman 2	Syria 6+	Yemen 7

**West Bank/Gaza not reviewed or classified.

*Downgraded on 2 April 2010 one notch.

+ Upgraded in 2009 one notch.

Copyright MEES 2010.