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