Countries' creditworthiness: An indicator from a probit analysis

This article discusses the results of an emperical analysis of developing countries' creditworthiness using data for 32 countries over the sample period 1983–1993, and presents a country risk indicator on the basis of a probit model. In this model the occurrence of payment arrears is related to a set of explanatory variables, which include policy-related and global determinants, next to general macroeconomic and financial variables. The new indicator has a rank correlation of about 0.8 with often used measures provided by rating agencies. Nevertheless, several remarkable differences are present. For Mexico, for instance, our indicator points towards declining creditworthiness since 1989, whereas other ratings show Mexico's creditworthiness to be increasing steadily.