Reliable Estimates of Sovereign Rating (original) (raw)
Related papers
The Credit Rating Agencies — Are They Reliable? A Study of Sovereign Ratings
Vikalpa: The Journal for Decision Makers, 2012
Sovereign credit ratings estimate the future ability and willingness of the sovereign governments to service their commercial and financial obligations in full and on time. The process of evaluating the nations and assigning ratings is a business involving various international rating agencies. Governments seek the credit ratings so as to improve their access to the international capital markets. The sovereign credit ratings are an important scale for determining the cost of borrowing to a country. The ratings provide a perception to the lenders about the level of credit risk of the national governments. However, the reliability of the ratings has been a matter of debate in the past due to the methodology followed by the rating agencies. The present paper attempts to check the reliability of these ratings by considering the ratings assigned by two of the major international rating agencies — Moody's and Standard and Poor's. This is done through comparison of the ratings assi...
Credit Rating Agencies: the Importance of Fundamentals in the Assessment of Sovereign Ratings
The aim of this paper is to investigate the significance of a set of macroeconomic variables in the assessment of the sovereign ratings provided by the three main credit rating agencies in different periods in time and for countries belonging to different cate gorizations. Ratings have a great economic importance as they constitute the main drivers for attracting foreign investments and can influence the dynamics of interest rates. By grouping the countries according to levels of development and indebted ness, we provide the analysis of the weights attributed to each one of the macroeco-nomic indicators included in the analysis. Furthermore, it is of interest to examine how ratings are constructed and if they exhibit a historical coherence that goes be yond the economic cycles. The analysis rests on an unbalanced panel of 139 countries in the period 1975-2010. In order to provide an answer to ratings' historical coher-ence, we selected two sub-periods: 1975-1996 and from 1997 onwards. Static esti mates findings show that per capita GNI, inflation, unemployment, fiscal balance, government debt and default history significantly affect ratings, while GNI growth and current account balance are less relevant. Furthermore, Granger causality results underline that a one-way causality runs from average ratings to economic growth.
On sovereign ratings: observations and implications
, as much of this note draws on that body of work. I would also like to thank John Chambers (S&P) and Mauro Leos (Moody's) and my IDB colleagues Ed Bartholemew, Eduardo Borensztein and my ex colleague Ugo Panizza for useful discussions on ratings, as well as the participants in the Sovereign Risk Seminar, held at the BIS January 8/9 2013 and particularly Bob McCauley at the BIS for his helpful and constructive suggestions. Remaining mistakes however are my own. All the opinions expressed are solely my own and do not necessarily reflect those of the Inter-American Development Bank, those of its Board of Directors, or those of the countries they represent.
Analysis of Moody's Sovereign Credit Ratings: Criticisms Towards Rating Agencies Are Still Valid?
Procedia. Economics and finance, 2015
With the increasing international financial and economic integration, sovereign credit ratings have become one of the most important elements in directing global capital flows. Effects of credit rating agencies on both sovereign economies and the global economy have increased. On the other hand, CRAs have been heavily criticized for their poor performance in the crises of 1990s and the recent global financial crisis that started in 2008. The aim of this study is to examine the systematic and consistency of sovereign credit ratings given by CRAs and to identify the determinants of sovereign credit ratings. As a result of panel data analysis conducted by reverse engineering methodology within this context, GDP per capita, governance quality, current account balance, growth performance and growth expectations, being an industrialized country and having a reserve currency were identified as factors affecting sovereign credit rating positively. On the other hand; exchange rate volatility, interest payments, debt stock and default occurrences were the factors effecting credit ratings negatively. The findings of the analyses support the critiques against CRAs about being unable to foresee the economic crises and about deepening the existing crises by making sudden rating cuts.
Pénzügyi Szemle = Public Finance Quarterly
International credit rating agencies regularly (twice a year) assess the risk level of sovereign debt, and thus that of a given country. In order to identify risks, each credit rating agency has developed its own methodology to assess economic and public finance processes and identify the emerging risks. The evaluations carried out influence at the international level the financing possibilities of a given country and its conditions. The improving result of evaluations by international credit rating agencies has become one of the requirements for the success of economic policy. However, this can only be a realistic condition and a measure of success if the evaluation made is methodologically sound and the evaluations resulting from their consistent implementation are scientifically credible. This article describes in detail the evaluation methodology applied by the three major international credit rating agencies to evaluate the individual countries and sovereign debt. After presenting the general aspects, the article draws attention to the fact that the principles of objectivity, authenticity and methodological determination are enforced in practice in the evaluations of international credit rating agencies to a limited extent.
Sovereign Ratings in the Post-Crisis World: An Analysis of Actual, Shadow and Relative Risk Ratings
Policy Research Working Papers, 2013
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
Determination of Sovereign Credit Rating Model for European Countries
Financial Markets, Institutions and Risks (FMIR), 2021
Credit rating agencies play a key role in financial markets, as they help to reduce asymmetric information among market participants via credit ratings. The credit ratings determined by the credit rating agencies reflect the opinion of whether a country can fulfil the liability or its credit reliability at a particular time. Therefore, credit ratings are a very valuable tool, especially for investors. In addition, the issue that credit rating agencies are generally criticised is that they are unsuccessful in times of financial crisis. Credit rating methodologies of credit rating agencies have been subject to intense criticism, especially after the 2007/08 Global Financial Crisis. Some of the criticised issues are that credit rating agencies' methodologies are not transparent; they are unable to make ratings on time, and they make incorrect ratings. In order to create a more reliable credit rating methodology, the credit rating industry and the ratings determined by rating agencies need to be critically examined and further investigated in this area. For this reason, in this study credit rating model has been developed for countries. Supervisory and regulatory variables, political indicators and macroeconomic factors were used as independent variables for the sovereign credit rating model. As a result of the study, the new sovereign credit rating calculates exactly the same credit rating with Fitch Rating Agency for developed countries, but there are 1 or 2 points differences for developing countries. In order to better understand the reason for these differences, credit rating agencies need to make their methodologies more transparent and disclose them to the public.
Sovereign risk assessment and agency credit ratings
European Financial Management, 1996
Sovereign ratings are gaining importance as more governments with greater default risk borrow in international bond markets. Howevel; while the ratings have proved useful to governments seeking market access, the difficulty of assessing sovereign risk has led to agency disagreements and public controversy over specific rating assignments. Recognising this difficul& the financial markets have shown some scepticism toward sovereign ratings when pricing issues.
Understanding the determinants of sovereign debt ratings: Evidence for the two leading agencies
Journal of Economics and Finance, 2003
I conduct an analysis of the possible determinants of sovereign credit ratings assigned by the two leading credit rating agencies, Moody's and Standard and Poor's, by using both a linear and a logistic transformation of the rating scales. Of the large number of variables that can be used, the set of explanatory variables selected in this study is significant in explaining the credit ratings. Namely, six variables appear to be the most relevant to determine a country's credit rating: GDP per capita, external debt, level of economic development, default history, real growth rate and inflation rate.
Current Issues in Economics and Finance, 1995
Sovereign ratings are gaining importance as more governments with greater default risk borrow in international bond markets. But while the ratings have proved useful to governments seeking market access, the difficulty of assessing sovereign risk has led to agency disagreements and public controversy over specific rating assignments. Recognizing this difficulty, the financial markets have shown some skepticism toward sovereign ratings when pricing issues.