Research and evidence
Country risk premiums: what we know and why they are not working well
Finance for Peace (Interpeace)
Brief
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.
Published: March 2024Authors: Boccanfuso, Sonno, Scrutinio and Zufacchi, in collaboration with Interpeace’s Finance for Peace initiative
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.
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