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What is the Proper Measurement to Determine Sovereign Debt Risk?

Mar 14, 2010
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There's a number of ways to measure the risk of sovereign debt, but what is the best way?

Is it just the total amount of the debt?

Is it the country's debt to GDP ratio?

Are there any other helpful metrics that should be used?

Personally, I believe the best measurement is a cross between debt to GDP and the market's demand for that particular country's debt.
Demand is useless really as it can change extremely quickly.

Debt to GDP ratio is most likely primary

Secondary considerations would be

Current deficit as % of GDP

Comparative tax levels for the country (low tax's means room for increasing them to cover debt payments)

And finally current account balance. A country with a positive current account balance will be increasing its wealth as it is paying its debts, allowing for higher debt payments if required
Why do we "measure the risk of sovereign debt" any differently than we would an individual or a private company?
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