Sovereign credit ratings
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