Sovereign Credit Rating Agencies (SCRAs)
Subscribers of "Current Affairs" course can Download Daily Current Affairs in PDF/DOC
Subscribe to Never Miss an Important Update! Assured Discounts on New Products!
Must Join PMF IAS Telegram Channel & PMF IAS History Telegram Channel
- Context (TH | IE): India’s Chief Economic Advisor flagged the ‘opaque’ methodologies followed by the world’s top SCRAs.
Sovereign Credit Ratings (SCR)
- SCR is an independent assessment of the creditworthiness of a country or sovereign entity.
- SCRs can tell about the level of risk associated with investing in sovereign debt instruments.
- Standard & Poor’s (S&P), Moody’s, and Fitch Ratings are the three most influential SCRAs.
- Economic growth, fiscal policies, public debt levels, political stability, and external trade position are observed to assign an appropriate credit rating.
- Importance: Better SCR can lead to cheaper governmental borrowings from the international bond market and increased FDI.
|
Government bonds/Government securities(G-Sec)/Treasury bills
|
Issues with SCRAs
- Qualitative factors in rating methodologies give rise to bandwagon effects and cognitive biases.
- It is alleged that countries’ ‘willingness to pay’ can manipulate the SCR.
- Despite slowdowns, no fall in the ratings of developed economies seems discriminatory.
- SCRAs use the World Bank’s “Worldwide Governance Indicators”, which have debatable observations.
- The stagnant BBB- rating of India, despite improvement to being 5th largest economy, is a concern.
Way Forward
- The Chief Economic Advisor of India recommended that the SCR model should include the debt repayment history of a country.