Pricing political stability

Flip Chart Fairy Tales

Government borrowing costs have little to do with a country’s debt level but quite a lot to do with its perceived stability. That is why a country like Japan, whose debt as a proportion of GDP is one of the highest in the world, pays interest at 0.03 percent on its bonds. Oil rich countries like Russia, Venezuela and Nigeria, with much lower levels of debt, pay significantly higher rates of interest; 7.5 percent for Russia, over 10 percent for Venezuela and a staggering 16 percent for Nigeria.

Countries with governments that might do something bonkers are perceived as a much greater risk than those with populations that pay their taxes and elect moderate governments. Stable and boring countries are a lot less risky. Most stable and boring of all are the Swiss who charge investors a small fee for lending money to their government.

Source: Trading Economics

But occasionally…

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