Sovereign Credit Ratings Methodology : An Evaluation

Author/Editor:

Ashok Vir Bhatia

Publication Date:

October 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 02/170

Subject:

English

Publication Date:

October 1, 2002

ISBN/ISSN:

9781451858433/1018-5941

Stock No:

WPIEA1702002

Format:

Paper

Pages:

60

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