Econ 360, Summer 2015 Country Report 3

Country Report 3 The Balance of Payments and Sovereign Risk

1. Compute your country's gross savings rate and GDP

(a) Go to the following website: http://data.worldbank.org/data-catalog/world-development- indicators

(b) Click on Databank

(c) Select your country, then click on series

(d) Scroll down (or type in) to GDP (current US$) and Gross Savings (current US$)

(e) For time, select 2013

(f) Next, either view this data in a table or download into Excel

(g) Compute the gross savings rate as gross savings divided by GDP

(h) Let me know if you cannot �nd this data. If GDP is missing for your country, try GNI instead.

2. Collect data on your country's current account and international investment position (IIP)

(a) Open the excel �le IIP.xls and �nd your country

(b) Mark down your country's current account balance, IIP assets and IIP liabilities. All of these values are in millions of US dollars

(c) Using your country's GDP (from step 1) compute your country's IIP balance in millions of dollars and as a percentage of GDP

(d) If your country does not have an IIP �gure listed, use the value for external debt and compute this as a percentage of GDP as well.

3. Collect data on your country's central bank interest rate

(a) Go to the following website: http://www.tradingeconomics.com/country-list/interest-rate

(b) Click on your country and mark down the current (last) interest rate

(c) Identify the trend in your country's interest rate over the last four years

(d) Let me know ASAP if your country is not listed

4. Next, get data on your country's sovereign risk rating

(a) Go to the following website: http://www.standardandpoors.com/ratings/en/us/

(b) Select Sovereigns under the category Governments on the right hand side of the screen

(c) Find your country and mark down its local currency rating, its foreign currency rating, and the T&C Assessment (transfer and convertibility - a measure of the risk that a country will impose restrictions on getting your money out of there).

(d) If you cannot �nd your country, this means that they are basically unable to issue debt. You can consider them as having the lowest rated risk D (junk bond status)

Present your data in a table like the one below. Use this information to answer the following questions:

1. Compared to the US, does your country have a higher or lower savings rate?

Econ 360, Summer 2015 Country Report 3

2. Does your country run a current account de�cit or surplus? Why do you think the current account has this sign?

3. What is the IIP as a share of GDP? What is one advantage of having this IIP? What is one potential cost? If the IIP/GDP is negative, do you think this debt is sustainable?

4. What is your country's sovereign risk rating? Use the following website: http://www.standardandpoors.com/ratings/denitions-and-faqs/en/us to help you answer this question.

5. Why might the rating on local currency debt be di�erent from that on foreign currency debt? Is the gap between these two large or small for your country? What does this imply about your country's exchange rate stability?

Sample Country Report 3: USA (US $ millions)

GDP and Savings

GDP Gross Savings Savings Rate $16,768,100 $2,910,985 17.4%

Balance of Payments

Current Account IIP Assets IIP Liabilities -$410,634 $24,693,220 $31,608,478

Net IIP Net IIP/GDP -$6,915,258 -41.2%

Interest Rates

Central Bank Int. Rate Trend (2011-2015) 0.25% Stable

Sovereign Risk

Local Currency Rating Foreign Currency Rating T&C Assessment AA+ AA+ AAA