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What is sovereign payment risk and what can investors do to mitigate it?

Sovereign payment risk is an issue that investors may encounter in any large-scale infrastructure project which involves government counterparties or support.

Recent events in Asia have highlighted the impact that a default by a sovereign or sub-sovereign entity can have on the success of a project, emphasising the importance of mitigating sovereign payment risk in infrastructure development to the fullest extent possible. This article sets out what people mean when they talk about “sovereign payment risk”, explains how to identify when this risk might arise and discusses prudent measures which investors can take to protect their projects from this risk manifesting.