Risk Evaluation Framework is designed to assess the multifaceted risks associated with investing in emerging and frontier Markets.
Liquidity & Strength Assessment
Understanding the financial stability and resilience of a market is crucial for making informed investment decisions. Our Liquidity & Strength Assessment framework evaluates key aspects of a country’s financial health, focusing on its fiscal, external, and domestic financial systems.
Fiscal Assessment
Gross Financing Needs (GFNs): This evaluation helps determine the public sector’s susceptibility to external financial conditions, local financial sentiment, and changes in public revenues and expenditures.
External Assessment
External Financial Requirements (EFRs): This analysis assesses a country’s vulnerability to current account shocks, reversals in financial flows, and fluctuations in the availability of US dollar liquidity.
Financial Assessment
Domestic Financial System Analysis: This helps identify potential contingencies that could affect public finances.
Economic & Political Capacity Assessment
Evaluating a country’s ability to withstand and respond to economic challenges is key to understanding its investment potential.
Economic Strength
Countries with higher GDP per capita and better economic growth trajectories are generally better equipped to handle economic, financial, or balance-of-payments shocks. We also consider economic buffers such as foreign exchange reserves and financial system liquidity.
Institutional Strength
We assess governance and social factors to evaluate a government’s capacity to respond effectively to shocks, both technically and politically.
Debt Sustainability Analysis (DSA)
Assessing a country’s debt sustainability is essential for understanding its long-term financial health and growth potential.
Standard DSA
Examines the progression of public debt levels in relation to economic growth, primary fiscal balance, and real-interest rates.
Economic Structure, Reform Needs, and Potential Growth
We evaluate the DSA in the context of the country's economic structure, political stability, and anticipated reform needs to gauge potential future development paths.
Environmental, Social, & Governance (ESG) Factors:
Incorporating ESG factors is vital to understanding the long-term viability and impact of investments.
Climate Risk and Climate Change
Assesses how climate risks and changes may affect economic cycles and identifies significant structural risks that need to be addressed in the medium to long term.
Sustainability, Natural and Human Capital
Evaluates the quality and viability of long-term growth based on sustainability factors and the condition of natural and human capital.
Social Factors
Determines how social factors shape governance and the range of acceptable policy options.
Governance
Recognizes that public finances are a product of policy choices and that effective outcomes require strong governance.