Document Type : Original Article
Authors
1
FEPS, Cairo University
2
Economics Department, Faculty of Economics and Political Sciences, Cairo University Faculty of Economics and Political Sciences, , Future University
3
Technical Office Unit, IDSC, Egyptian Cabinet, Egypt
4
Economics Department, Faculty of Economics and Political Sciences, Cairo University
Abstract
The sovereign credit rating classified by international rating agencies is crucial for countries to obtain as much funds as possible from the international market, and thereby attract foreign investments, as sovereign credit rating indicates the level of investment climate risk in a country. Therefore, investors often use ratings determined by credit rating agencies as an indicator that determines countries' creditworthiness. Hence, the study examines the various economic and institutional determinants of the sovereign credit rating in selected emerging markets during the period 1998‒2020. The study was conducted on 19 emerging markets characterized by many economic changes during the study period, these changes in turn help efficiently extract tangible results. To achieve this target, the study used the sovereign credit ratings of the three global agencies: Moody's, Standard & Poor's, and Fitch, seeking to answer the main research question “What are the most important and relevant economic and institutional determinants of the sovereign credit rating of a group of emerging market countries? And how can emerging markets improve such ratings?” Moreover, the econometric approach was adopted through the use of the Ordered Probit Model. This is due to the nature of the sovereign credit rating variable, which is converted quantitatively to ranked grades. The results of the empirical study revealed the importance of macroeconomic variables entirely in determining emerging market sovereign credit ratings, specifically the importance of GDP per capita, foreign debt as a proportion of total exports of foreign goods, services and foreign currency reserves, institutional determinants in determining the degree of sovereign credit rating of the states under study according whether in the short or long term. The study differed in the degree of significance of these variables in the three agencies, and the study also found that the exchange rate of countries' currencies denominated in dollars is not significant in determining the sovereign credit rating of countries, whether in the short or long term. The study imbedded some proposals for policy makers that might be of help for raising up the credit rating, such as improving economic growth rates, supporting the increase in foreign currency flows to enhance the monetary reserve, as well as methods to control high inflation rates and price increases through various monetary policy mechanisms.
Keywords
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