Sov­er­eign credit rat­ings

CityPress - - Business -

Sov­er­eign credit rat­ings give in­vestors in­sight into the level of risk as­so­ci­ated with in­vest­ing in a par­tic­u­lar coun­try. To give in­vestors con­fi­dence in in­vest­ing in their coun­try, many coun­tries seek rat­ings from credit rat­ing agen­cies like Stan­dard and Poor’s, Moody's, and Fitch to pro­vide fi­nan­cial trans­parency.

Sov­er­eign bond rat­ings are based on sev­eral fac­tors, in­clud­ing:

Per capita in­come The greater the po­ten­tial tax base for each coun­try, the greater the abil­ity of gov­erN­ment to re­pay debts

GDP growth A high rate of eco­nomic growth sug­gests that a coun­try’s ex­ist­ing debt bur­den will be­come eas­ier to pay off over time In­fla­tion Coun­tries that have a high rate of in­fla­tion are coun­tries that may also have struc­tural prob­lems with the gov­ern­ment’s fi­nances

Ex­ter­nal bal­ance A large na­tional deficit sug­gests a gov­ern­ment is un­able to ser­vice its debt

Ex­ter­nal debt The higher the debt bur­den, usu­ally, the higher the risk of de­fault

Eco­nomic de­vel­op­ment It is be­lieved that once a coun­try reaches a cer­tain in­come or level of de­vel­op­ment it is less likely to de­fault. A sim­ple in­di­ca­tor comes from the IMF clas­si­fi­ca­tion

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.