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Determinants of Estonian Sovereign Credit Rating


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  • Andres Vesilind


  • Ingrid Toming


  • Raoul Lättemäe



The paper focuses on sovereign credit ratings assigned to Estonia and analyses their possible determinants. The first chapter gives an overview of different rating agencies and the methodology they use in rating process. Besides that the interpretation, comparability and explanatory power of different ratings are analysed. The chapter concludes with the description of Estonian rating history. The second chapter analyses the possible determinants of Estonian rating. Firstly, the possible problems in analysing the determinants are discussed. Secondly, the factors that have been seen as important determinants of ratings in theoretical literature or previous empirical researches are presented. The third chapter analyses empirically the determinants of Estonian credit rating. For this purpose, Estonia is analysed in the context of three country groups: former socialist countries, developed European countries and countries having similar ratings. Also the factors that different rating agencies have pointed out in their reports about Estonia are compared with the empirical results. The chapter concludes with the comparison of the results of the analysis and SWOT analysis. The results of the paper show that the most critical factors for Estonia that can constrain possible rating upgrade in the future are low nominal level of per capita GDP, high unemployment rate and high CA deficit. At the same time it should be looked after that other important indicators that have a strong relation with rating (such as inflation, fiscal balance, foreign debt level and speed of transition and EU accession) are kept under control.

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Bibliographic Info

Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2001-03.

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Length: 41 pages
Date of creation: 12 Oct 2001
Date of revision: 12 Oct 2001
Publication status: published
Handle: RePEc:eea:boewps:wp2001-03

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  1. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
  2. Nadeem Ul Haque & Manmohan S. Kumar & Nelson Mark & Donald J. Mathieson, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 688-724, December.
  3. Cem Karacadag & Michael W. Taylor, 2000. "The New Capital Adequacy Framework - Institutional Constraints and Incentive Structures," SUERF Studies, SUERF - The European Money and Finance Forum, number 8 edited by Morten Balling.
  4. International Monetary Fund, 1998. "The Relative Importance of Political and Economic Variables in Creditworthiness Ratings," IMF Working Papers 98/46, International Monetary Fund.
  5. Cem Karacadag & Michael Taylor, 2000. "The New Capital Adequacy Framework," IMF Working Papers 00/93, International Monetary Fund.
  6. Patrick Sabourin, . "Analyzing and Forecasting Credit Ratings: Some Canadian Evidence," Working Papers-Department of Finance Canada 1999-02, Department of Finance Canada.
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