Credit rating agencies and developing economies

Working Paper Date:
Category: Financing for Development
Author: Stephany Griffith-Jones and Moritz Kraemer
Document Symbol: ST/ESA/2021/DWP/175
JEL Classification: G24, G28, H63, H69
Keywords: sovereign debt, debt sustainability, regulation, credit rating agencies, pro-cyclicality
Working Paper File:
wp175_2021.pdf 413.08 KB

The pandemic-induced global economic crisis has contributed to the re-emergence of sovereign default risk, especially for emerging and developing economies, and has directed attention to the impact of the institutions that are tasked with attempting to predict defaults: the international credit rating agencies. This paper describes four main challenges posed by credit rating agencies, especially from a developing and emerging economies perspective: potential bias in ratings, pro-cyclicality of ratings, governance issues and conflicts of interest, and incorporation of climate risk. It concludes with potential policy solutions addressed at ratings agencies, regulators, and policy makers.