A new approach to regional risk premiums
Finance for Peace (Interpeace)
Country risk premiums: what we know and why they are not working well
Review of how country risk premiums are set and why they often misprice risk at project level, overcharging well-designed projects in fragile settings.
What it covers
A review of the methods used to set country risk premiums, the evidence on how well they predict realised losses, and the consequences for projects in fragile and conflict-affected settings. The paper finds that country-level pricing bears little relation to the risk carried by an individual project, systematically overcharges projects that are designed to reduce their own risk, and leaves the conduct that actually drives outcomes invisible in the price.