Bangkok--20 Oct--Standard & Poor's
Standard & Poor's Ratings Services today issued an update of its global criteria article, "Sovereign Credit Ratings: A Primer." The article reviews the five main areas of Standard & Poor's sovereign rating criteria (political risk, economic prospects, fiscal flexibility, monetary policy, and external debt and liquidity). It also addresses emergence from default, foreign/local currency rating distinctions, and rating surveillance. Ratings coverage continues to expand, with the 113th sovereign rating recently assigned to the Republic of Seychelles (see "Sovereign Ratings History Since 1975," available on RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com .
According to Standard & Poor's credit analyst Marie Cavanaugh, sovereign credit ratings reflect its opinions on the future ability and willingness of sovereign governments to service their debt obligations in full and on time. "Sovereign ratings are not 'country ratings'; they address the default risks of national governments, but not the specific defaults risks of other issuers," said Ms. Cavanaugh. "While nonsovereign ratings are most frequently the same as or lower than the sovereign ratings in the country of domicile, foreign currency ratings may be higher when the nonsovereign entity has stronger credit characteristics than the sovereign and the risk of the sovereign limiting access to foreign exchange needed for debt service is lower than the risk of sovereign default," she said. (See "Transfer And Convertibility Assessment History Since November 2005," updated monthly on RatingsDirect).
Standard & Poor's sovereign default record is lower than the corporate default record at most rating levels, but the small number of rated sovereign defaults hinders such comparisons. Standard & Poor's expects sovereign default probabilities to converge with corporate ratios over time as the number of sovereign observations increases, as would be expected given the same rating definitions.
"Past sovereign defaults reflect a variety of factors, including wars, revolutions, lax fiscal and monetary polices, and external economic shocks," Ms. Cavanaugh noted. "Today, tenuous fiscal discipline, debt management pressures, structural inefficiencies constraining productivity, and contingent liabilities arising from off-budget activities and weak banking systems are among the economic policy challenges facing many sovereigns," she concluded.
The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com . If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected] . Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com ; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided.
Media Contact:
David Wargin, New York (1) 212-438-1579
[email protected]
Analyst Contacts:
Marie Cavanaugh, New York (1) 212-438-7343
David T Beers, London (44) 20-7176-7101
Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 7,500 employees, including wholly owned affiliates, located in 21 countries. Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com .
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