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Subnational credit ratings : a comparative review

  • Liu, Lili
  • Tan, Kim Song
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    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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    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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    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; An Evaluation," IMF Working Papers 02/170, International Monetary Fund.
    3. 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.
    4. 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.
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