Travels in the Ratings Space: Developed and Developing Countries’ Sovereign Ratings

Abstract

Sovereign ratings, in short, are a relative measure of the creditworthiness of debt instruments issued by governments (‘Sovereigns’): they therefore provide a comparative gauge of the risk associated in investing in those instruments. For fundamental reasons (their greater levels of wealth, more robust institutions, etc.), historically developed economies have been associated with higher average Sovereign ratings (i.e., less risk) than developing ones. However, the apparent structural break in terms of growth dynamics between developed and developing economies observed since the late 1990s has also been associated with, among other things, better external and fiscal positions. Without implying any mechanical causality, one could also expect a smaller ratings difference between developing and developed Sovereigns. This chapter assesses if this has indeed happened.