The Credit FAQ, entitled “The Future Of Sovereign Credit Ratings,” was published on RatingsDirect, Standard & Poor’s Web-based credit analysis system, on Sept. 16, 2005, and looks at the prospects for new sovereign ratings, ahead of the Sept. 24-25, 2005, meetings of the Board of Governors of the World Bank Group and the International Monetary Fund in Washington.
Standard & Poor’s currently has credit ratings on 107 sovereign governments, a spectacular increase from just seven ratings in 1975, and representing more than one-half of the 191 sovereigns that make up the United Nations. New sovereign ratings in the coming decade are likely to be predominantly in the speculative-grade category, from regions such as the Caribbean, South Asia, the Pacific, and sub-Saharan Africa.
“Sovereign ratings are no longer the preserve of governments seeking to access the international bond markets,” said David Beers, global head of sovereign and international public finance ratings at Standard & Poor’s. “Demand for new ratings is now being driven by sovereigns that rarely issue cross-border debt, yet see other advantages in having a globally accepted benchmark of creditworthiness.”
The report states that rated bank loans and local currency bonds are now commonplace, and ratings have become an important part of the debt exchanges that many governments use to emerge from default. Other benefits can include helping to foster foreign direct investment, private sector access to the global capital markets, a more vibrant local capital market, and demonstrating greater public sector financial transparency.
International organizations are playing an important part in fostering interest in sovereign ratings among emerging market countries. The United Nations Development Programme, for instance, has joined with Standard & Poor’s in an initiative to facilitate sovereign ratings in sub-Saharan Africa. This unique partnership has already led to new ratings on seven sub-Saharan African states in the past two years, and several more, including ones from other regions, are expected in the coming year.
“Many governments in Africa and other regions have embarked on wide-ranging economic and financial reforms, and they see that credit ratings can help support that effort,” noted Mr. Beers. “It is a necessary step in helping to mobilize private sector capital, which is essential for their economic development,” he concluded.