Do Ratings Really Matter For The Sovereign?

A case for an upgrade

A Lahiri

Managing director,

CARE

Sovereign ratings of global credit rating agencies provide useful evaluation of various aspects of an economy to facilitate an assessment on the ability and willingness of the country to honour foreign debt commitments.

In technical terms, these ratings generally attempt to ascertain the probability of default on sovereign foreign debt. They have evolved methodologies to analyse objective economic parameters and express an opinion on the credit quality of the country, which is reviewed from time to time. The rationale of the ratings expresses concern on the risk factors impinging on the qualities of ratings.

 

The sovereign ratings enable the country or its entities to raise foreign debts from international markets. The Indian foreign currency ratings assigned by S&P, Moody