• UGI USER
  • Dec 23, 2023
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CHALLENGES IN SOVEREIGN CREDIT RATING: CEA’S CALL FOR REFORM

Why in the News?

  • Chief Economic Advisor’s office calls for urgent reforms in sovereign credit rating.
  • Fitch, Moody’s, and S&P methodologies criticized for being subjective, especially toward developing countries.
  • Over-reliance on non-transparent qualitative factors impacts India’s credit rating despite significant economic growth.
Source: WallStreetMojo

Impact on Developing Countries:

  • Qualitative parameters weigh more than actual macroeconomic fundamentals.
  • Improvements in economic parameters may not impact credit ratings if qualitative aspects are perceived as needing improvement.
  • Developing nations face implications for accessing capital markets and borrowing at affordable rates.

Recommendations for Transparency and Reform:

  • Proposed reforms advocate relying on a country’s debt repayment history to determine willingness to pay.
  • Calls for greater transparency and reforms in the rating process.

Criticizes the opacity in rating agencies’ methodologies and emphasizes the need for authentic, verifiable information