COUNTRY RISK ASSESSMENT USING DISCRIMINANT ANALYSIS

The purpose of this study is to identify the economic and financial variables which affect a country's credit worthiness. Once the variables are identified, a model is developed using discriminant analysis to separate the forty developing countries used in this study into three specific risk categories: (1) low risk, (2) medium risk, and (3) high risk. Several financial and economic variables are tested, but only six were considered significant enough to be used in the model. These six variables are gross national product per capita, debt service ratio, export, import, debt outstanding and disbursed as a percentage of GNP and, finally, international reserve to debt outstanding.