Sovereign Risk

Sovereign risk refers to the possibility that a government may be unable or unwilling to meet its debt obligations, such as loans or bonds it has issued. This risk affects investors and lenders because if a country defaults or experiences political or economic instability, they might not get their money back or may face delays. Factors influencing sovereign risk include economic health, political stability, and fiscal policies. Essentially, it reflects how likely a government is to honor its financial commitments, which can impact investment returns and borrowing costs for that country.