scholarly journals Examining the Factors Affecting Sovereign Credit Rating of Gulf Cooperation Council Countries

2020 ◽  
Vol 12 (1) ◽  
pp. 12
Author(s):  
Yaser A. AlKulaib ◽  
Musaed S. AlAli
Keyword(s):  
Interest Rate ◽  
Credit Rating ◽  
Government Debt ◽  
Gulf Cooperation Council ◽  
Gdp Per Capita ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Per Capita ◽  
Sovereign Credit Rating

Despite the controversy surrounding the credibility of credit rating agencies’ rating systems, these agencies' ratings still play a crucial role in determining the premium paid by governments on their bonds. As a result, obtaining a high sovereign credit rating would lower borrowing costs and more demand for their bonds. In order to do so, policymakers should be aware of the factors that mostly affect the sovereign credit rating of their countries. While there are many factors credit rating agencies consider when assigning a sovereign credit rating for any country, this study aims to identify the factors that mostly affect Gulf Cooperation Council (GCC) countries’ sovereign credit ratings assigned by the biggest three credit rating agencies, Standard and Poor’s (S&P), Moody’s, and Fitch. This study is based on the Gulf Cooperation Council (GCC) data 2012–2018. Results obtained from this research show that interest rate, government debt to GDP ratio, GDP per capita, and the labeling of the country as developed or developing country was the variables that mostly affect the S&P rating. GDP per capita and government debt to GDP were the factors that most influenced Moody’s scores. In contrast, GDP, interest rate, transparency score, government debt to GDP, and GDP per capita were the factors that most affect Fitch's credit rating scores. The results also revealed that in 2018, Kuwait was the most overrated country, while Oman was the most underrated country.

scholarly journals Sovereign Credit Rating Mismatches

2018 ◽  
pp. 49-70
Author(s):  
António Afonso ◽  
André Albuquerque
Keyword(s):  
Credit Rating ◽  
Credit Ratings ◽  
External Debt ◽  
Gdp Per Capita ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings ◽  
Relevant Variables ◽  
Per Capita ◽  
Investment Grade ◽  
Sovereign Credit Rating

We study the factors behind ratings mismatches in sovereign credit ratings from different agencies, for the period 1980‑‑2015. Using random effects ordered and simple probit approaches, we find that structural balances and the existence of a default in the last ten years were the least significant variables. In addition, the level of net debt, budget balances, GDP per capita and the existence of a default in the last five years were found to be the most relevant variables for rating mismatches across agencies. For speculative‑‑grade ratings, a default in the last two or five years decreases the rating difference between S&P and Fitch. For the positive rating difference between S&P and Moody’s, and for investment‑‑grade ratings, an increase in external debt leads to a smaller rating gap between the two agencies.

scholarly journals Determination of Sovereign Credit Rating Model for European Countries

2021 ◽  
Vol 5 (3) ◽  
Author(s):  
Isik Akin
Keyword(s):  
Financial Crisis ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Credit Ratings ◽  
Developed Countries ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Rating Model ◽  
Sovereign Credit Rating

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.

A comparative study of economic growth as a key determinant of sovereign credit ratings in Africa

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Misheck Mutize ◽  
McBride Peter Nkhalamba
Keyword(s):  
Economic Growth ◽  
Credit Rating ◽  
Credit Ratings ◽  
Credit Rating Agencies ◽  
African Union ◽  
African Countries ◽  
Content Type ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings

PurposeThis study is a comparative analysis of the magnitude of economic growth as a key determinant of long-term foreign currency sovereign credit ratings in 30 countries in Africa, Europe, Asia and Latin America from 2010 to 2018.Design/methodology/approachThe analysis applies the fixed effects (FE) and random effects (RE) panel least squares (PLS) models.FindingsThe authors find that the magnitude economic coefficients are marginally small for African countries compared to other developing countries in Asia, Europe and Latin America. Results of the probit and logit binary estimation models show positive coefficients for economic growth sub-factors for non-African countries (developing and developed) compared to negative coefficients for African countries.Practical implicationsThese findings mean that, an increase in economic growth in Africa does not significantly increase the likelihood that sovereign credit ratings will be upgraded. This implies that there is lack of uniformity in the application of the economic growth determinant despite the claims of a consistent framework by rating agencies. Thus, macroeconomic factors are relatively less important in determining country's risk profile in Africa than in other developing and developed countries.Originality/valueFirst, studies that investigate the accuracy of sovereign credit rating indicators and risk factors in Africa are rare. This study is a key literature at the time when the majority of African countries are exploring the window of sovereign bonds as an alternative funding model to the traditional concessionary borrowings from multilateral institutions. On the other hand, the persistent poor rating is driving the cost of sovereign bonds to unreasonably high levels, invariably threatening their hopes of diversifying funding options. Second, there is criticism that the rating assessments of the credit rating agencies are biased in favour of developed countries and there is a gap in literature on studies that explore the whether the credit rating agencies are biased against African countries. This paper thus explores the rationale behind the African Union Decision Assembly/AU/Dec.631 (XXVIII) adopted by the 28th Ordinary Session of the African Union held in Addis Ababa, Ethiopia in January 2017 (African Union, 2017), directing its specialized governance agency, the African Peer Review Mechanism (APRM), to provide support to its Member States in the field of international credit rating agencies. The Assembly of African Heads of State and Government highlight that African countries are facing the challenges of credit downgrades despite an average positive economic growth. Lastly, the paper makes contribution to the argument that the majority of African countries are unfairly rated by international credit rating agencies, raising a discussion of the possibility of establishing a Pan-African credit rating institution.

RESEARCH OF DEBT SECURITY OF UKRAINE

2016 ◽  
Vol 4 (2) ◽  
pp. 0-0
Author(s):  
Oksana Kardash
Keyword(s):  
Retrospective Analysis ◽  
Credit Rating ◽  
External Debt ◽  
Government Debt ◽  
National Debt ◽  
Sovereign Credit ◽  
Debt Security ◽  
Sovereign Credit Rating

On the basis of retrospective analysis of national debt in Ukraine its dynamics, structure is investigated; division of its development into periods is made. The regularities of Ukraine’s government debt have been identified and the basic tendencies of the internal and external debt have been shown. The sovereign credit rating of Ukraine has been investigated as a factor of debt security.

Sovereign credit rating and contagion effects on financial markets of Asian region

2020 ◽  
Vol 2020 (6) ◽  
pp. 48-69
Author(s):  
Natalia Pivnitskaya ◽  
Tamara Teplova
Keyword(s):  
Financial Markets ◽  
Credit Rating ◽  
Contagion Effect ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Asian Region ◽  
Contagion Effects ◽  
Rating Changes ◽  
The Impact ◽  
Sovereign Credit Rating

This article studies the contagion effects on the emerging financial markets of the Asian region. The contagion effect is manifested in the change of interconnection degree of financial markets after the shock in one of the countries of the region. In the paper, we consider the information on potential or actual change in sovereign credit rating as a shock leading to a contagion effect. Our sample includes evidence from 7 Asian countries covering the period from 2000 to 2018. We use the DCC-GARCH model which allows us to take into account the peculiarities of financial data behavior. We intend to show the effect of inconsistencies in ratings assigned by various agencies on strengthening or weakening the processes of contagion on Asia’s stock markets. We also study the impact of historical inconsistencies between credit rating outlooks and actual rating changes on the level of «trust» to credit outlooks in the future. In assessing the impact of discrepancies we assume that the market remembers recent events better than more distant in time. We were able to confirm the impact of inconsistencies in the ratings given by different rating agencies for China, Hong Kong, and India. In addition, we found that the presence of inconsistencies between the outlooks and actual rating updates in the past tend to weaken the trust regarding positive outlooks rather than negative ones.

scholarly journals Impact of Fiscal Deficit and Government Debt on Interest Rate in Pakistan

2019 ◽  
pp. 1-17
Author(s):  
Najia Shakir ◽  
Sami Ullah ◽  
Salim Ullah Khan ◽  
Muhammad Qasim
Keyword(s):  
Interest Rate ◽  
Money Supply ◽  
Government Debt ◽  
Gdp Per Capita ◽  
Fiscal Deficit ◽  
Per Capita ◽  
The Government ◽  
The Interest Rate ◽  
Relationship Of ◽  
The Relationship

The current study was conducted in the year 2014 in Pakistan to investigate the impact of fiscal deficit and government debt on the interest rate.  Data on selected macroeconomic variables like fiscal deficit, government debt, GDP per capita, money supply and volume of trade etc. from the year 1990 to 2012.  The study also has tried to find out that how the interest rate in the country is affected by the government debt and fiscal deficit. Augmented Dickey-Fuller test was run to address the stationary issue in the data, and then Ordinary Least Square (OLS) model test was run to check the relationship among the variables. Two models were set in the study. In the first model, the relationship of GDP per capita, money supply, total debt servicing and volume of trade showed a significant relationship with the fiscal deficit, while in the second model the relationship of inflation, fiscal deficit, money supply, government debt and public debt showed a significant relationship with the interest rate. Policy makers are advised to focus on the increase of DGP/Capita and export volume. In order to sustain the rate of inflation, the government may regulate the money supply and public borrowing.

scholarly journals Stock Market Reactions To Sovereign Credit Rating Changes: Evidence From Four European Countries

2014 ◽  
Vol 30 (3) ◽  
pp. 953 ◽  
Author(s):  
Ibrahim Fatnassi ◽  
Zied Ftiti ◽  
Habib Hasnaoui
Keyword(s):  
Sovereign Debt ◽  
Credit Rating ◽  
Debt Crisis ◽  
Regression Equations ◽  
Market Reactions ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Rating Changes ◽  
Stock Market Reactions ◽  
Sovereign Credit Rating

We analyze the reactions of the returns of four European stock markets to sovereign credit rating changes by Fitch, Moodys, and Standard and Poors (S&P) during the period from June 2008 to June 2012 using panel regression equations. We find that (i) upgrades and downgrades affect both own country returns and other countries returns, (ii) market reactions to foreign downgrades are stronger during the sovereign debt crisis period, and (iii) negative news from rating agencies are more informative than positive news.

Effects of fiscal credibility on sovereign risk: evidence using comprehensive credit rating measures

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Gabriel Caldas Montes ◽  
Julyara Costa
Keyword(s):  
Risk Perception ◽  
Financial Market ◽  
Public Debt ◽  
Credit Rating ◽  
Credit Rating Agencies ◽  
Sovereign Risk ◽  
Content Type ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Long Run

PurposeSince sovereign ratings provided by credit rating agencies (CRAs) are a key determinant of the interest rates a country faces in the international financial market and once sovereign ratings may have a constraining impact on the ratings assigned to domestic banks or companies, some studies have focused on identifying the determinants of sovereign credit risk assessments provided by CRAs. In particular, this study estimates the effect of fiscal credibility on sovereign risk using four different comprehensive credit rating (CCR) measures obtained from CRAs' announcements and two different fiscal credibility indicators.Design/methodology/approachWe build comprehensive credit rating (CCR) measures to capture sovereign risk. These measures are calculated using sovereign ratings, the rating outlooks and credit watches issued by the three main credit rating agencies (S&P, Moody's and Fitch) for long-term foreign-currency Brazilian bonds. Based on monthly data from 2003 to 2018, we use different econometric estimation techniques in order to provide robust results.FindingsThe results indicate that fiscal credibility exerts both short- and long-run effects on sovereign risk perception, and macroeconomic fundamentals are important long-run determinants.Practical implicationsSince fiscal credibility reflects the government's ability to maintain budgetary balance and sustainable public debt, the government should keep its commitment to responsible fiscal policies so as not to deteriorate expectations formed by financial market experts about the fiscal scenario and, thus, to achieve better credit assessments issued by CRAs with respect to sovereign debt bonds. Sovereign credit rating assessment is a voluntary practice. It is up to the country whether they want to apply for a rating assessment or not. Thus, without a sovereign rating, one must find an alternative to measure the sovereign risk of a country. In this sense, an important practical implication that this study provides is that fiscal credibility can be used as a leading indicator of sovereign risk perceptions obtained from CRAs or even as a proxy for sovereign risk.Originality/valueThis paper is the first to verify how important the expectations of financial market experts in relation to the fiscal effort required to keep public debt at a sustainable level (i.e. fiscal credibility) are to sovereign risk perception of credit rating agencies. In this sense, the study is the first to address this relation, and thus it contributes to the literature that seeks to understand the determinants of sovereign ratings in emerging countries.

scholarly journals Sovereign credit ratings and CDS spreads in Emerging Europe

Equilibrium ◽  
2020 ◽  
Vol 15 (3) ◽  
pp. 419-438
Author(s):  
Łukasz Dopierała ◽  
Daria Ilczuk ◽  
Liwiusz Wojciechowski
Keyword(s):  
Financial Markets ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Credit Ratings ◽  
Value Added ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Sovereign Credit ◽  
Sovereign Credit Ratings ◽  
The Impact

Research background: Sovereign credit ratings play an important role in determining any country’s access to the international debt market. During the global financial crisis and the European debt crisis, credit rating agencies were harshly criticized for the timing of their announcements regarding ratings downgrades and the ranges of those downgrades. Therefore, it is worth considering whether the sovereign credit rating is still a useful benchmark for investors. Purpose of the article: This article examines whether credit rating agencies still provide financial markets with new information about the solvency of governments in Emerging Europe countries. In addition, it describes the differences in the effect of particular types of rating events on financial markets and the impact of individual agencies on the market situation. Our study also focuses on evaluating these occurrences at different stages of the business cycle. Methods: This article uses data about ratings events that took place between 2008 and 2018 in 17 Emerging Europe economies. We took into consideration positive, neutral, and negative events related to ratings changes and the outlooks reported by Fitch Ratings, Moody’s, and Standard & Poor’s. We used a methodology based on event studies. In addition, we performed Wilcoxon signed-ranks test and used a logit model to determine the usefulness of cumulative adjusted credit default swap (CDS) spread changes in predicting the direction of ratings changes. Findings & Value added: Our research provides evidence that the CDS market reflects information regarding government issuers up to three months before ratings downgrades are announced. Information reported to the market by ratings agencies is only relevant in the short timeframe surrounding ratings downgrades and upgrades. However, positive credit rating changes convey more information to the market. We also found strong evidence that, in the post-crisis period, credit ratings provide markets with less information.

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