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Subnational credit ratings : a comparative review

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  • Liu, Lili
  • Tan, Kim Song
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    Abstract

    This paper surveys methodological issues in subnational credit ratings and highlights key challenges for developing countries. Subnational borrowing from capital markets has been on the rise owing to fiscal decentralization and demand for infrastructure investments. A prerequisite for accessing capital markets, subnational credit ratings have also emerged as a part of broader reform for fiscal sustainability. They facilitate a more transparent budgetary and financial management system. The global financial crisis makes subnational credit ratings more relevant, as they contribute to fiscal risk evaluations and fiscal adjustment. In addition to subnationals’ own credit strength, the creditworthiness of the sovereign and the intergovernmental fiscal system are among the most critical rating criteria. Implicit and contingent liabilities are integral to the rating process. Indirect debt instruments including off-balance-sheet financing create fiscal risks. The ongoing financial crisis has reinforced the rating focus on the management of liquidity, debt structure, and off-balance-sheet liabilities.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5013.

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    Date of creation: 01 Aug 2009
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    Handle: RePEc:wbk:wbrwps:5013

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    Keywords: Debt Markets; Banks&Banking Reform; Bankruptcy and Resolution of Financial Distress; Access to Finance;

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    1. Carmen M. Reinhart, 2002. "Default, Currency Crises and Sovereign Credit Ratings," NBER Working Papers 8738, National Bureau of Economic Research, Inc.
    2. Ashok Vir Bhatia, 2002. "Sovereign Credit Ratings Methodology," IMF Working Papers 02/170, International Monetary Fund.
    3. Ianchovichina, Elena & Liu, Lili & Nagarajan, Mohan, 2006. "Subnational fiscal sustainability analysis : what can we learn from Tamil Nadu ?," Policy Research Working Paper Series 3947, The World Bank.
    4. Sy, Amadou N. R., 2002. "Emerging market bond spreads and sovereign credit ratings: reconciling market views with economic fundamentals," Emerging Markets Review, Elsevier, vol. 3(4), pages 380-408, December.
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    Cited by:
    1. Otaviano Canuto & Lili Liu, 2010. "Subnational Debt Finance and the Global Financial Crisis," World Bank Other Operational Studies 10186, The World Bank.
    2. Al-Sakka, Rasha & ap Gwilym, Owain, 2010. "Split sovereign ratings and rating migrations in emerging economies," Emerging Markets Review, Elsevier, vol. 11(2), pages 79-97, June.

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