Reforming sovereign credit rating process need of the hour: CEA
NEW DELHI : Credit rating agencies need to reform their sovereign rating process to correctly reflect the default risk of developing economies, saving billions in funding costs, the government’s chief economic adviser, V Anantha Nageswaran, said on Thursday. His comments coincide with India seeking an upgrade to its sovereign credit rating, currently at the lowest possible investment grade, as the South Asian nation has seen its economic metrics improve considerably since the pandemic.
In a document titled Re-examining Narratives: A Collection of Essays, Nageswaran said the enormous degree of opaqueness in credit rating methodologies makes it challenging to quantify the impact of qualitative factors on credit ratings. “The significant presence of qualitative factors in credit rating methodologies also gives rise to bandwagon effects and cognitive biases amply reflected in various studies, generating concerns about the credibility of credit ratings," he added.
Nageswaran’s comment comes as the government continues to engage with prominent global credit rating agencies to improve India’s sovereign credit rating. To that extent, finance ministry officials have met representatives from the top three rating agencies–Fitch Ratings, Moody’s Investors Service and S&P Global Ratings–seeking an upgrade.
A sovereign credit rating is a measurement of a government’s ability to repay its debt, with a low rating indicating high credit risk. While S&P and Fitch rate India at BBB, Moody’s rates the South Asian country at Baa3, which indicates the lowest possible investment grade, albeit with a stable outlook.
Typically, rating agencies use various parameters to rate a sovereign. These include growth rate, inflation, government debt,
. Read more on livemint.com
