The Organization for Economic Cooperation and Development (OECD) has upgraded Iran's rating in the country risk classifications of the Participants to the Arrangement on Officially Supported Export Credits (CRE).
According to the international body's latest risk classification table updated on Friday, Iran’s ranking improved one notch, moving from 7 to 6. As the OECD puts it, the country risk classifications are meant to reflect country risk, which is composed of transfer and convertibility risk (i.e. the risk a government imposes capital or exchange controls that prevent an entity from converting local currency into foreign currency and/or transferring funds to creditors located outside the country) and cases of force majeure (e.g. war, expropriation, revolution, civil disturbance, floods, earthquakes). Iran has been expecting the improvement since the lifting of the sanctions early this year. The country hit nadir in the CRE ratings in 2012 when sanctions against its nuclear program were tightened. Tehran, however, is aiming at a rating of 4 that it held before 2007, on grounds that it has proved its ability to make good on its commitments even during the sanctions years, according to Export Guarantee Fund of Iran’s deputy CEO, Arash Shahraini.
Waiting for Next Meeting
“We were expecting to be upgraded to 4 at OECD's latest meeting,” Shahraini told the Financial Tribune. “But, Iran’s risk classification is likely to be further upgraded at the body's next meeting in October, if members call for a revision.”
The country risk classifications of the Participants to the Arrangement on Officially Supported Export Credits are one of the most fundamental building blocks of the arrangement rules on minimum premium rates for credit risk, according to OECD. They are produced for the purpose of setting minimum premium rates for transactions supported according to the arrangement and they are made public so that any country that is not an OECD member or a participant to the arrangement may observe the rules of the arrangement. “Upgrades in risk classification will pave the way for foreign finance to flow into the country,” Shahraini said. He pointed to the ongoing talks between EGFI and major credit rating agencies and said, “This could help us tap global financial markets for issuing bonds at lower yields.”
The country risk classifications are not sovereign risk classifications and should not, therefore, be compared with the sovereign risk classifications of private credit rating agencies (CRAs). Conceptually, they are more similar to the "country ceilings" that are produced by some of the major CRAs.