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Sovereign Credit Ratings Methodology: An Evaluation

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  • Mr. Ashok Vir Bhatia

Abstract

This paper describes and evaluates the sovereign credit ratings methodologies of Standard & Poor's, Moody's Investors Service, and Fitch Ratings. A simple definition of ratings failure-based on ratings stability-is proposed and tested, pointing to falling failure rates, consistent upside bias, and strong interagency correlation. Possible causes of ratings failure are separated into informational, analytical, revenue bias, and other incentive problems, each of which is discussed. The paper seeks to highlight methodological developments after the Asian crisis, particularly with regard to the estimation of contingent liabilities and the assessment of international reserves adequacy.

Suggested Citation

  • Mr. Ashok Vir Bhatia, 2002. "Sovereign Credit Ratings Methodology: An Evaluation," IMF Working Papers 2002/170, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2002/170
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    References listed on IDEAS

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    1. 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.
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    8. John Ammer & Frank Packer, 2000. "How consistent are credit ratings? a geographic and sectoral analysis of default risk," International Finance Discussion Papers 668, Board of Governors of the Federal Reserve System (U.S.).
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    11. Mr. Mark R. Stone, 2000. "The Corporate Sector Dynamics of Systemic Financial Crises," IMF Working Papers 2000/114, International Monetary Fund.
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    13. International Monetary Fund, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Working Papers 1996/009, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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