Taking into account the Moody's Sovereign Bond Ratings Methodology, the Credit Risk Indicators (presented in review Slides 1 to 4) and the Country IMF reports.
Provide a Country head-to-head analysis for each of the following criteria
(i) Fiscal Space (ii) External Finances and (iii) Financial Sector Health between:
? India and China
? US and Italy
? Germany and US
Review Slide 1 Sub-factor Weighting Broad Rating Factors Rating Sub-Factor [towards Factor Sub-Factor Indicators Average Real GDP Growth : 4totes Growth Dynamics 50% Volatility in Real GDP Growth Later WEF Global Competitiveness Index Factor 1: Economic Strength Scale of the Economy 25% Nominal GDP (US$) . National Income 25% GDP per capita (PPP, $US) . Adjustments to Factor Score 0 - 6 scores Credit Boom Other Worldwide Government Effectiveness Index Institutional Framework and Effectiveness 75% Worldwide Rule of Law Index Worldwide Control of Corruption Index Factor 2: Institutional Strength Policy Credibility and 25% Inflation Level , 4totes Effectiveness Inflation Volatility . . tor Adjustments to Factor Score 0 - 6 scores Track Record of Default Other Moodys: Sovereign Bond Ratings Debt Burden 50%' General Government Debt/GDP General Government Debt/Revenues Debt Affordability 50%' General Government Interest Payments/ Revenue General Government Interest Payments/GDP Factor 3: Fiscal Debt Trend :4tot41 Strength General Government Foreign Currency Debt/General Government Debt Adjustments to Factor Score 0- 6 scores Other Public Sector Debt/GDP Public Sector Financial Assets or Sovereign Wealth Funds/ General Government Debt . Other Political Risk Max. Function" Domestic Political Risk Geopolitical Risk Government Liquidity Risk Max. Function Fundamental Metrics Market Funding Stress Factor 4 Susceptibility to Strength of Banking System Event Risk Banking Sector Risk Max. Function Size of Banking System Funding Vulnerabilities (Current Account Balance+FDI)/GDP . Source: Moody's Investors Service External Vulnerability Risk Max. Function" External Vulnerability Indicator (EVI) ... Sovereign and Net International Investment Position/ GDP SupranationalReview Slides 2\\ Country Risk Monitor : Criteria Step - by - step Approach to Evaluating Country Risk Analysis National Accounts ( %/ of GDP ) Balance of Payments ( % of GDP ) Exchange Rate and Money Supply Consumption Trade Balance Exchange Rate ( 1.Cross , end period ) Investment Net Services Real Effective Exchange Rate Government* Net Factor Payments Money + Quasi - money ( growth ) Exports Ner Transfers* Domestic Credit ( growth ) Imports Current Account GDP ( US$ millions ) Capital Account* Interest and Inflation Rates* GDP ( [C millions ) Net Foreign Direct Investment Lending Rate ( annual )* Real GDP ( IC millions , 1990 prices ) Ner Portfolio Investment Money Market Rate ( annual ) Other Capital Inflows Consumer Prices ( year 2000 = 100 ) Government Finances ( 96 of GDP ) Financial Balance Revenues Overall Balance* Expenditures* Reserves , minus gold ( %/ of GDP ) Balance* Months of Imports Covered by Int'! General Government Debt Reserves External DebtCountry Risk Monitor : Crisis Indicators ( 1 of 2 ) Step - by -step Approach to Evaluating Country Risk Analysis Indicator* Type of Crisis Characteristics Trigger Points* Early Warning - Short Term* Low Risk Monitor* High Risk Lead Time Asset Prices* Stock market prices* FX - Financial Rises sharply - plunges 12 10 6 mo. Stable 50% rise 20% Fall 9 to 6 mo . before crisis* Real estate prices* FX - Financial! Rises sharply - plunges 12 to 6 mo . Stable 50% rise 20%6 fall 9 to 6 mo .* before crisis* Real interest rates FX - Financial Negative , then jumps* 396 Negative High 12 to 6 mo` Real exchange rates Ex - Financial 36 mo . high rising , peaks at crisis . Floating* Adjustable* Fixed 24 to 3 mo` overvalued then falls* Change in nominal exchange rate* 36 - 12 mo . high , 12 mo . falls Normal High Falls 12 mo . Liquidity Money supply growth FX - Bank - Fin. Normal MZ to GDP ratio Normal Rising Falls below normal Credit expansion growth FX - Bank - Fin Normal domestic assets to GDP ratio Normal Rising Falls below normal Change in MZ to reserves ratio FX - Bank - Fin. 24 mo . rising , 3 mo . jumps Normal Rising Jumps 24 10 3 170` Nominal M 2 growth FX - Bank - Fin . 24 mo . increase , 18 mo . declines* Normal Rising 18 mo . declines* 24 10 18 mo` Real M2 growth FX - Bank - Fin. 24 mo increase , 12 mo . declines* Normal Rising 12 mo . declines 24 to 12 mo` Nominal private credit growth FX - Bank - Fin 24 mo. high 10 - 2096 , 15 mo . Falls* Normal Rising 20 - 3:0%6) 15 mo . Falls 24 10 15 10. Change in MZ TOMI ratio FX - Bank - Fin . 24 mo . high- rising . 15 mo . plummers , Normal High & rising Plummets 24 10 9 170` 9 mo . rises* Banking crisis FX - Financial! 12 mo . before currency crisis , high &` Normal Increase* Jumps 12 mo . rising non - performing loans* Inflation Debt - FX - Bank - Fin .` (1 1 , 24 mo , increased , 15 mo . moderated\\ Low Rising Surges then falls* 24 to 15 mo` International Reserves* Change in months of imports* Debt - FX - Fin .* Less than 3 mo ; rises then declines* Greater than* 3 - 8 170 . Plummets* 6 10 3 mo . covered by reserves* 20 - 3096\\ 8 mo . Short term capital inflow* Debt - Fx - Fin . 36 mo. increases , 12 mo. Falls* Normal Increases Declines sharply 12 mo . ( 96 of GDP ) Private capital inflow Debt - FX - Fin. 36 mo . high 5- 1296, 24 mo . declines* Normal Increases Declines sharply 24 mo . (96 of GDP ) Capital Inflows - long term* FX - Financial* Maturity exceeding I year* Normal Increases Declines sharply 24 mo . Errors & omissions* FX - Financial From balance of payments Positive & Fluctuating* Large negative 12 mo . Source: Country Risk Monitor , CO6 - 07- 0016 stable* & falling*Country Risk Monitor : Crisis Indicators ( 2 of 2 ) Step - by - step Approach to Evaluating Country Risk Analysis Indicator* Type of Crisis* Characteristics* Trigger Points* Early Warning_ Short Term* Low Risk Monitor* High Risk Lead Time* Asset Prices\\ Longer - term Indicators Export growth Debt - Fix - Fin . 12 mo . decline in growth - 5 10 - 1096 points Real growth* Scable Falls 5 10 1096 points* 12 mo. below normal* Trade balance* Debt - Fx - Fin . Net exports as 90 imports* Stable Deteriorating Sharp decline* 9 mo . Industrial / mfe. growth Debt - Fx - Fin. 18 mo. rises 2 - 596 points above norm* Normal High Declines 12 mo . Annual real GDP growth Bank - Fin . 36 mo . high 1 -396 points , 12 mo . declines* Normal! High Declines 12 mo . Investment ( 96 of GDP ) Bank - Fin 36 mo high 3- 696 points , 24 mo . Falls* Normal High Falls 24 mo . Fiscal balance (96 of GDP) Bank - Fin. 36 mo . high 1- 496 points , 12 mo . Filly Normal High Falls 12 me . Debt Service* Debt - Financial Change relative to real GDP growth Less than Equal to Greater than* 24 may Debt Service Ratio Debt - Financial* Share of exports used to make debt Less than 20%6\\ 20 - 30-96) Greater than 3:096 24 mo . service payments* 196 short - term debt to recall Debt - Financial* Short term debt as 96 of total debt* Less than 2096\\ $20 - 3090) Greater than 3:096 12 mo . 96 variable Debt - Financial* Short term or variable interest rate on Low Moderate High 12 mo. Foreign debt as 96 of total debt* Current account / G DP Debt - Financial* 36 mo . declines , 24 mo. rises Less than 296\\ 2 - 596 Greater than 596 24 mo . Co- incident Indicators Debt/ GDP Debt - Financial Less than 3:096 30- 5096\\ Greater than 5096 Debt/ Exports Debt - Financial Less than 150-96 150 - 25090) Greater than 25096 O Lagging Indicators Bond rating* Debt - Financial No change Fall Falling Risk ratings Debt - Financial No change Fall Falling O Overall Rating Vulnerabilities* Commodity prices Debt - Financial Export concentration by product* Low Moderate* High 36 mo . Export concentration* Debt - Financial* Concentration by country* Low Moderate High 36 mo . Environment* Debt - Financial General political & economic environment* Favorable* Neutral Unfavorable* 36 mo. Contagion* Debt - Financial See vulnerabilities to contagion* Low Moderate* High 36 mo Source : Country Risk Monitor , CO6- 07- 0.016
