Inflation 'solution' should help avoid Brazil default

2016 ◽  
Keyword(s):  
Sovereign Debt ◽  
Credit Rating ◽  
Case Scenario ◽  
Current Crisis ◽  
Content Type ◽  
Rating Agencies ◽  
Primary Deficit ◽  
Political Conditions ◽  
The Government ◽  
Investment Grade

Significance Days before this announcement, the government asked Congress to approve a primary deficit of up to 96.65 billion reais (some 1.5% of GDP) for this year. The sharp deterioration in fiscal performance in recent years led the three main credit rating agencies to strip Brazil of its investment grade status between September 2015 and February 2016. A profound and prolonged recession and dysfunctional politics that make it difficult to address Brazil's fiscal shortcomings have also increased concerns over the sustainability of the country's sovereign debt. Impacts The depth of the current crisis could lead to political conditions for bolder economic reforms. However, that best-case scenario is out of reach for the current government. Even fortunate future governments would only enjoy a narrow window of opportunity to seek ambitious reforms.

Assessing sovereign risk: the case of rich countries

2014 ◽  
Vol 6 (3) ◽  
pp. 212-225 ◽  
Author(s):  
Norbert Gaillard
Keyword(s):  
Sovereign Debt ◽  
Credit Rating ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
Bond Yields ◽  
Content Type ◽  
The Great Recession ◽  
Market Participants ◽  
Investment Grade ◽  
Rich Countries

Purpose – This paper aims to shed new light on the inability of credit rating agencies (CRAs) to forecast the recent defaults and so-called quasi-defaults of rich countries. It also describes how Moody’s sovereign rating methodology has been modified – and could be further improved – to solve this problem. Design/methodology/approach – After converting bond yields into yield-implied ratings, accuracy ratios are computed to compare the respective performances of CRAs and market participants. Then Iceland’s and Greece’s ratings at the beginning of the Great Recession are estimated while accounting for the parameters included in the new methodology implemented by Moody’s in 2013. Findings – Market participants outperformed Moody’s and Standard & Poor’s in terms of anticipating the sovereign debt crisis that hit several European countries starting in 2008. However, the new methodology implemented by Moody’s should lead to more conservative and accurate sovereign ratings. Originality/value – The chronic inability of CRAs to anticipate public debt crises in rich countries is dangerous because the countries affected – which are generally rated in the investment-grade category – are substantially downgraded, amplifying the sovereign debt crisis. This study is the first to demonstrate that Moody’s has learned from its recent failures. In addition, it recommends ways to detect serious threats to the creditworthiness of high-income countries.

Chile spending commitments may hamper fiscal prudence

2018 ◽  
Keyword(s):  
Government Spending ◽  
Credit Rating ◽  
Gdp Growth ◽  
Credit Rating Agencies ◽  
Government Budget ◽  
Content Type ◽  
Rating Agencies ◽  
The Government ◽  
Fiscal Prudence

Subject The draft 2019 budget. Significance The government budget for 2019, announced by President Sebastian Pinera on September 29, is the most austere in almost a decade. It aims to restore Chile’s long-standing reputation for exemplary fiscal conduct, which in recent years has been undermined by increases in government spending that outstrip GDP growth, and the resulting increase in borrowing. Impacts Credit rating agencies have indicated that the draft budget is in line with their concerns about Chile’s rising borrowing requirement. The ongoing decline in fiscal revenues from copper underlines Chile’s need to diversify its economy. The government will be hard-pressed to meet its fiscal goals if, as current forecasts suggest, GDP growth weakens through to 2020.

Russia readies for long economic struggle

2015 ◽  
Keyword(s):  
Economic Policy ◽  
Credit Rating ◽  
Social Spending ◽  
Content Type ◽  
Economic Plan ◽  
Rating Agencies ◽  
European Trade ◽  
The Government ◽  
Key Industries ◽  
Sovereign Credit Rating

Significance The currency, which has fallen 14% against the dollar so far this year, fell another 3% in morning European trade, sinking below 70 to the dollar. The rate cut comes after the January 26 downgrade by international ratings agency Standard & Poor's (S&P) of Russia's sovereign credit rating to junk status (from BBB- to BB+) and the January 28 announcement of an economic plan that will see the government spend 2.34 trillion rubles (35 billion dollars) to bolster key industries, including banks, and to boost its troubled economy particularly in the regions. As part of the measures, Moscow plans a 10% cut in the budgets of all but a handful of ministries. Defence, agriculture and social spending are spared. Impacts Discussions between liberals are not as important to economic policy as they were. Further measures to boost the economy are likely in order to forestall more rating agencies downgrading Russia to junk status. The Security Council will exert greater influence over economic policy, further marginalising economic liberals.

Weak growth to weigh on South Africa's credit rating

2016 ◽  
Keyword(s):  
South African ◽  
Credit Rating ◽  
Good Governance ◽  
Content Type ◽  
Rating Agencies ◽  
Presidential Succession ◽  
Capital Outflows ◽  
Weak Growth ◽  
Investment Grade ◽  
Levels Of Support

Subject Outlook for South Africa's sovereign rating. Significance Recent decisions by the three main credit rating agencies to retain South Africa's investment-grade status following their respective mid-year reviews was met with relief within business and government circles. A downgrade to junk status risked a sharp depreciation in the rand, rising debt burdens, significant capital outflows and almost certain recession. The agencies will conduct their next reviews in December. Impacts Intra-ANC factionalism linked to the presidential succession will intensify after the municipal elections in August. If the ANC loses significant levels of support in major cities, its members may blame Zuma, possibly hastening his departure. Increased censorship by the state-owned South African Broadcasting Corporation will undermine good governance. High unemployment will persist, which, together with interest rate hikes, will dampen prospects for a recovery in consumption growth.

Vietnam anti-corruption drive may have limited success

2018 ◽  
Keyword(s):  
Credit Rating ◽  
Content Type ◽  
Rating Agencies ◽  
High Profile ◽  
Limited Success ◽  
Orderly Transition ◽  
Investment Grade ◽  
General Secretary ◽  
Standing Problem ◽  
Party Congress

Subject Vietnam's corruption crackdown. Significance Vietnam’s latest anti-corruption drive is set to target more high-profile figures. The country has a long-standing problem with institutional corruption, but critics of the ruling Communist Party of Vietnam (CPV) see its crackdowns as politically motivated. Impacts Improvements in corruption indices may convince credit rating agencies to edge Vietnam closer to investment-grade status. Greater CPV discipline may help General Secretary Nguyen Phu Trong engineer an orderly transition of leadership at the 2021 party congress. Vietnam is likely to face greater international criticism over human rights violations.

South Africa's Mboweni will aid Ramaphosa reform push

2018 ◽  
Keyword(s):  
South African ◽  
Credit Rating ◽  
Short Term ◽  
Content Type ◽  
Rating Agencies ◽  
Reserve Bank ◽  
Freedom Fighters ◽  
Left And Right ◽  
The Government

Significance A former South African Reserve Bank (SARB) governor and minister of labour, Mboweni faces a crucial first few weeks in his new post as the government attempts to placate rating agencies and engineer an economic turnaround. Mboweni’s initial moves may be determined by Moody’s credit rating review expected today. Impacts In the short term, Mboweni’s appointment will be a boost for Ramaphosa’s bid for fiscal consolidation and growth. In the medium-to-long term, Mboweni will likely prove a more polarising figure inside the ANC than Nene. Allegations linking the Economic Freedom Fighters with a major banking scandal could give Mboweni and the ANC an early political 'win'. Mboweni's previous social media utterances could be further exploited by opponents, both left and right, in the months ahead.

Omani debt may face further downgrades

2019 ◽  
Keyword(s):  
Sovereign Debt ◽  
Credit Rating ◽  
Oil Prices ◽  
Load Resistance ◽  
Market Demand ◽  
Fiscal Reform ◽  
Content Type ◽  
Rating Agencies ◽  
Fiscal Reforms ◽  
Speed Up

Subject Outlook for Omani debt. Significance Over the last two years, all three major credit rating agencies have cut Oman’s sovereign debt rating to junk status (meaning a rating below BBB-), most recently Moody’s on March 5. This has happened despite strengthening oil prices and positive internal developments, because of a growing debt load, resistance to fiscal reform and governance concerns. Impacts Funds forced to sell Omani bonds, due to their junk status, will buy BBB-rated sovereigns. A pause in Omani bond issuance could raise market demand for similarly rated sovereign issues in the region, such as Bahrain. Negatively rated oil-exporting sovereigns may speed up fiscal reforms to avoid Oman’s fate.

The impact of market sectors and rating agencies on credit ratings: global evidence

2019 ◽  
Vol 20 (5) ◽  
pp. 389-410
Author(s):  
Kerstin Lopatta ◽  
Magdalena Tchikov ◽  
Finn Marten Körner
Keyword(s):  
Credit Risk ◽  
Credit Rating ◽  
Credit Ratings ◽  
Content Type ◽  
Rating Agencies ◽  
Credit Rating Agency ◽  
Rating Agency ◽  
Investment Grade ◽  
The Impact ◽  
Rating Downgrades

Purpose A credit rating, as a single indicator on one consistent scale, is designed as an objective and comparable measure within a credit rating agency (CRA). While research focuses mainly on the comparability of ratings between agencies, this paper additionally questions empirically how CRAs meet their promise of providing a consistent assessment of credit risk for issuers within and between market segments of the same agency. Design/methodology/approach Exhaustive and robust regression analyses are run to assess the impact of market sectors and rating agencies on credit ratings. The examinations consider the rating level, as well as rating downgrades as a further measure of empirical credit risk. Data stems from a large global sample of Bloomberg ratings from 11 market sectors for the period 2010-2018. Findings The analyses show differing effects of sectors and agencies on issuer ratings and downgrade probabilities. Empirical results on credit ratings and rating downgrades can then be attributed to investment grade and non-investment grade ratings. Originality/value The paper contributes to current finance research and practice by examining the credit rating differences between sectors and agencies and providing assistance to investors and other stakeholders, as well as researchers, how issuers’ sector and rating agency affiliations act as relative metrics.

Zuma's hold on South Africa's ANC will weaken

2016 ◽  
Keyword(s):  
Institutional Investors ◽  
Credit Rating ◽  
Crowding Out ◽  
Content Type ◽  
Rating Agencies ◽  
State Capture ◽  
Investment Grade ◽  
A Share

Significance Yet Zuma's speech failed to restore his credibility, which has suffered several blows in recent weeks. Nor did it reassure investors and rating agencies, despite a threatened credit rating downgrade to 'junk' status. Impacts A credit downgrade would significantly raise the share of debt servicing as a share of overall spending, crowding out other priorities. It would also drive significant portfolio outflows -- since many institutional investors are barred from sub-investment grade sovereigns. Increasingly, anti-Zuma ANC factions will use opposition argot warning of "state capture" by corrupt elites to discredit him.

South Africa's parastatals face growing turmoil

2017 ◽  
Keyword(s):  
South African ◽  
Credit Rating ◽  
Partial Solution ◽  
The State ◽  
Power Utility ◽  
Content Type ◽  
Rating Agencies ◽  
Additional State ◽  
The Government ◽  
State Financing

Significance This comes amid reports that the state-owned airline will shortly receive a 10-billion-rand (760-million-dollar) bailout from the government, with almost 7 billion rand in debts due to lenders by September 30. The performance of South Africa's state-owned enterprises (SOEs) has featured prominently in rating agencies' downgrade assessments; Moody's cut embattled power utility Eskom's credit rating in June. Impacts The dismissal of SOE officials implicated in Gupta-related corruption allegations will prove only a partial solution to institutional rot. Dampened growth of between 0.5-1.0% this year could be further worsened by additional state financing of SOEs. The South African Reserve Bank's recent mandate court victory will only temporarily allay concerns over its institutional independence.

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