Country risk premiums: what we know and why they are not working well
Finance for Peace (Interpeace)
A new approach to regional risk premiums
Proposes a project-level approach to pricing risk in fragile regions, so that the conduct of a project, not only its country, determines its cost of capital.
What it covers
Investment decisions in developing countries have traditionally rested on country risk premiums. But risk varies enormously within a country, by region and by how an individual project is designed and run. This two-page brief sets out why country-level pricing often misprices well-designed projects in difficult places, and proposes a regional and project-level approach in which the measures a project takes to reduce conflict risks are reflected in its cost of capital.