Publication: Sovereign Ratings in the Post-Crisis World : An Analysis of Actual, Shadow and Relative Risk Ratings
Loading...
Published
2013-10
ISSN
Date
2014-02-04
Author(s)
Editor(s)
Abstract
This paper analyzes the evolution of sovereign credit ratings in the wake of the global financial crisis by studying changes in actual, shadow, and relative ratings between 2008 and 2012. For countries that do not have a rating from the major rating agencies, shadow ratings are estimated as a function of macroeconomic, structural, and governance variables. The shadow rating exercise confirms earlier findings in the literature that even after the financial crisis, many unrated countries appear to be more creditworthy than previously believed and can access international capital markets. The paper also develops a new rating scale called the "relative risk rating," which ranks countries according to their actual or shadow ratings after controlling for changes in the world weighted average rating. When relative ratings in 2012 are compared with the first half of 2008, the world average rating is found to be weaker because of the financial crisis. The relative rating improved in developing economies such as Azerbaijan, Ethiopia, Kazakhstan, Indonesia, and the Philippines, whereas it deteriorated in crisis-affected high-income countries such as Cyprus, Greece, Spain, Portugal, Ireland, and Egypt. Interestingly, India, Jordan, Poland, and the United Kingdom had their rating outlook downgraded by the rating agencies, but their relative rating actually improved as other countries suffered even worse downgrades. A regression model is used to analyze the relative contributions of different variables to rating changes during 2008-2012, a helpful feature for policy makers interested in improving sovereign ratings.
Link to Data Set
Citation
“Basu, Kaushik; De, Supriyo; Ratha, Dilip; Timmer, Hans. 2013. Sovereign Ratings in the Post-Crisis World : An Analysis of Actual, Shadow and Relative Risk Ratings. Policy Research Working Paper;No. 6641. © World Bank. http://hdl.handle.net/10986/16859 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication The Economic Value of Weather Forecasts: A Quantitative Systematic Literature Review(Washington, DC: World Bank, 2025-09-10)This study systematically reviews the literature that quantifies the economic benefits of weather observations and forecasts in four weather-dependent economic sectors: agriculture, energy, transport, and disaster-risk management. The review covers 175 peer-reviewed journal articles and 15 policy reports. Findings show that the literature is concentrated in high-income countries and most studies use theoretical models, followed by observational and then experimental research designs. Forecast horizons studied, meteorological variables and services, and monetization techniques vary markedly by sector. Estimated benefits even within specific subsectors span several orders of magnitude and broad uncertainty ranges. An econometric meta-analysis suggests that theoretical studies and studies in richer countries tend to report significantly larger values. Barriers that hinder value realization are identified on both the provider and user sides, with inadequate relevance, weak dissemination, and limited ability to act recurring across sectors. Policy reports rely heavily on back-of-the-envelope or recursive benefit-transfer estimates, rather than on the methods and results of the peer-reviewed literature, revealing a science-to-policy gap. These findings suggest substantial socioeconomic potential of hydrometeorological services around the world, but also knowledge gaps that require more valuation studies focusing on low- and middle-income countries, addressing provider- and user-side barriers and employing rigorous empirical valuation methods to complement and validate theoretical models.Publication Direct and Indirect Impacts of Transport Mobility on Access to Jobs: Evidence from South Africa(Washington, DC: World Bank, 2025-11-12)Access to jobs is essential for economic growth. In Africa, unemployment rates are notably high. This paper reexamines the relationship between transport mobility and labor market outcomes, with a particular focus on the direct and indirect effects of transport connectivity. As predicted by theory, wages are influenced by the level of commuting deterrence. Generally, higher earnings are associated with longer commute times and/or higher commuting costs. Local accessibility is also important, especially for individuals with time constraints. Both direct and indirect impacts are found to be significant in South Africa, where job accessibility has been challenging since the end of apartheid. For the direct impact, the wage elasticity associated with commuting costs is significant. Returns on commute are particularly high for women. Local accessibility to socioeconomic facilities, such as shops and health services, is also found to have a significant impact, consistent with the concept of mobility of care. To enhance employment, therefore, it is crucial to connect people not only to job locations but also to various socioeconomic points of interest, such as markets and hospitals, in an integrated manner. This integration will enable individuals to spend more time working and commuting longer distances.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication From Policy to Practice: Lessons from the Implementation of the Refugee Work Rights Policy in Ethiopia(Washington, DC: World Bank, 2025-11-10)This paper examines the early implementation of Ethiopia’s refugee work rights policy, with a focus on the issuance of permits that enable refugees to engage in economic activities. Building on significant legal and institutional advances under the 2019 Refugee Proclamation and subsequent directives, the analysis explores how these reforms are being operationalized in practice. Using a mixed-methods approach, combining document review, administrative data analysis, and semi-structured interviews, the paper identifies both progress and remaining challenges. Permit issuance has increased since the adoption of detailed operational guidance in 2024, reflecting the Government of Ethiopia’s commitment to operationalizing its progressive legal framework and ensuring that refugees can exercise their right to work. However, take-up remains modest, with about 5.2 percent of the working-age population holding a permit. Preliminary evidence suggests that coordination gaps, limited subnational capacity, low awareness among refugees and employers, and disincentives to formalize in a largely informal labor market are contributing to the low take-up. The paper offers policy suggestions, grounded in the Ethiopian context and emerging evidence, to help translate legal commitments into improved labor market outcomes for refugees.Publication Monitoring Global Aid Flows: A Novel Approach Using Large Language Models(Washington, DC: World Bank, 2025-11-04)Effective monitoring of development aid is the foundation for assessing the alignment of flows with their intended development objectives. Existing reporting systems, such as the Organisation for Economic Co-operation and Development’s Creditor Reporting System, provide standardized classification of aid activities but have limitations when it comes to capturing new areas like climate change, digitalization, and other cross-cutting themes. This paper proposes a bottom-up, unsupervised machine learning framework that leverages textual descriptions of aid projects to generate highly granular activity clusters. Using the 2021 Creditor Reporting System data set of nearly 400,000 records, the model produces 841 clusters, which are then grouped into 80 subsectors. These clusters reveal 36 emerging aid areas not tracked in the current Creditor Reporting System taxonomy, allow unpacking of “multi-sectoral” and “sector not specified” classifications, and enable estimation of flows to new themes, including World Bank Global Challenge Programs, International Development Association–20 Special Themes, and Cross-Cutting Issues. Validation against both Creditor Reporting System benchmarks and International Development Association commitment data demonstrates robustness. This approach illustrates how machine learning and the new advances in large language models can enhance the monitoring of global aid flows and inform future improvements in aid classification and reporting. It offers a useful tool that can support more responsive and evidence-based decision-making, helping to better align resources with evolving development priorities.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Global Liquidity and External Bond Issuance in Emerging Markets and Developing Economies(World Bank, Washington, DC, 2015-07)Using the universe of all externally issued bonds by corporates and sovereigns in emerging and developing economies during 2000-14, this paper analyzes various issuance trends, including the unprecedented post-crisis surge. The paper focuses on external issuance at the country-industry and individual bond levels and finds that global factors matter greatly for emerging and developing economies issuance. A decrease in U.S. expected equity market (or interest rate) volatility, U.S. corporate credit spreads, and U.S. interbank funding costs and an increase in the Federal Reserve’s balance sheet (i) raise the odds that the monthly issuance volume of a country-industry is above its historical average; (ii) decrease individual bond yields and spreads; and (iii) raise bond maturities, after controlling for country pull factors, bond characteristics (for example, type of issuer, industry, and riskiness). Additionally, we document support that the risk-taking channel of exchange rate appreciation also operates for external bond issuance. Moreover, while the paper finds that country pull factors affect the impact of global factors, it does not find consistent evidence for this across the board. This result suggests that, during loose global funding conditions, flows are mostly driven by push factors and do not systematically discriminate between emerging and developing economies. Taken together, the findings suggest that although issuers might be able to benefit from benign international funding conditions, the large issuance volumes, currency risks, and high exposure to global factors could pose external and domestic challenges for policy makers, particularly when global cycles reverse.Publication Global Development Finance 2008 : The Role of International Banking, Volume 1. Review, Analysis, and Outlook(2008)This report is comprised of two volumes. Global Development Finance (GDF) 2008 volume one provides analysis of key trends and prospects, including coverage of the role of international banking in developing countries. Volume two provides summary and country tables contain statistical tables on the external debt of the 134 countries that report public and publicly guaranteed debt under the Debtor Reporting System (DRS). It also includes tables of selected debt and resource flow statistics for individual reporting countries as well as summary tables for regional and income groups. It is the culmination of a year-long process that requires extensive cooperation from people and organizations around the globe-national central banks, ministries of finance, major multilateral organizations, and many departments of the World Bank.Publication Default, Currency Crises, and Sovereign Credit Ratings(Washington, DC: World Bank, 2002-05)Sovereign credit ratings play an important part in determining countries' access to international capital markets and the terms of that access. In principle, there is no reason to expect that sovereign credit ratings should systematically predict currency crises. In practice, in emerging market economies there is a strong link between currency crises and default. Hence if credit ratings are forward-looking and currency crises in emerging market economies are linked to defaults, it follows that downgrades in credit ratings should systematically precede currency crises. This article presents results suggesting that sovereign credit ratings systematically fail to predict currency crises but do considerably better in predicting defaults. Downgrades in credit ratings usually follow currency crises, possibly suggesting that currency instability increases the risk of default.Publication Global Economic Prospects : Financial Markets Outlook, June 2014(World Bank Group, Washington, DC, 2014-06)External financing conditions for developing countries have been remarkably favorable in recent months, reflecting expectations of a more drawn-out period of monetary policy accommodation in high-income countries and some narrowing of external vulnerabilities. Additional easing by the European Central Bank, combined with prospects of modest growth and stable inflation in the United States ( Goldilocks recovery ), helped pull down bond yields and volatility worldwide. These benign conditions currently provide support to capital inflows and activity across developing countries, but could at the same time increase the risk of greater and potentially more abrupt market adjustments ahead. Despite some reduction of current account deficits in several developing countries, many remain vulnerable to sudden shifts in investors sentiment and capital outflows. Following a brief period of market turmoil at the start of the year, global financing conditions have eased consider-ably from March to June. Bond spreads for developing countries (i.e. yield difference with 10-year U.S. Treasury bonds) have narrowed, bringing down average borrowing costs to their lowest level since the spring of 2013. Stock markets have also recovered rapidly from a significant sell-off in January/February, despite rising geopolitical tensions and evidence of disappointing activity in the first quarter of the year. As presented in the June 2014 edition of Global Economic Prospects, a more favorable global environment is reflected in upward revisions to capital inflow forecasts for developing countries, now projected to remain broad-ly stable as a percentage of GDP in 2014 and 2015, at around 5.6 percent, before declining again in 2016, to 5.1 percent. While baseline forecasts assume an orderly in-crease in long-term interest rates in high-income countries, the risk of more abrupt adjustments from current low levels has recently increased. Escalating geopolitical tensions or financial stress in some developing countries could also potentially trigger a sudden re-pricing of risk. Despite the recent narrowing of current account deficits in some developing countries, many remain vulnerable to a sharp increase in borrowing costs and/or significant currency depreciations, which could put additional strain on corporate and bank balance sheets.Publication Public Debt Management in Emerging Market Economies : Has This Time Been Different?(2010-08-01)Despite the scale of the global financial crisis, to date it has not resulted in a sovereign debt crisis among emerging market countries. Two significant factors in this outcome are the improved macroeconomic management and public debt management in these countries over the past decade. This paper reviews the improvements in macroeconomic fundamentals and the composition of public debt portfolios in emerging market countries prior to the crisis and concludes that the policies and strategies pursued by governments provided them with a buffer when the crisis hit. Nevertheless, with the international capital markets effectively closed for over three months and domestic borrowing in many cases impacted by extreme risk aversion, government debt managers were required to adapt their strategies to rapidly changing circumstances. The paper reviews the impact of the crisis and the responses of debt managers to the drying up of international capital, decreased liquidity in markets, and sharply increased term premia. Three categories of response are identified: (i) funding from other sources to reduce pressure on market borrowing; (ii) adapting funding programs to changes in demand in the different types of securities; and (iii) implementing liability management operations to support the market. Most governments were willing to accept temporarily greater risk in their portfolios, often reversing long established strategies, at a time when financial markets were under stress. These actions contributed to the measures taken by governments to stabilize markets and prevent economies from stalling. Looking to the future, government debt managers will need to consider how they can increase the resilience of public debt portfolios for the uncertain times that lie ahead.
Users also downloaded
Showing related downloaded files
Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication Digital Progress and Trends Report 2023(Washington, DC: World Bank, 2024-03-05)Digitalization is the transformational opportunity of our time. The digital sector has become a powerhouse of innovation, economic growth, and job creation. Value added in the IT services sector grew at 8 percent annually during 2000–22, nearly twice as fast as the global economy. Employment growth in IT services reached 7 percent annually, six times higher than total employment growth. The diffusion and adoption of digital technologies are just as critical as their invention. Digital uptake has accelerated since the COVID-19 pandemic, with 1.5 billion new internet users added from 2018 to 2022. The share of firms investing in digital solutions around the world has more than doubled from 2020 to 2022. Low-income countries, vulnerable populations, and small firms, however, have been falling behind, while transformative digital innovations such as artificial intelligence (AI) have been accelerating in higher-income countries. Although more than 90 percent of the population in high-income countries was online in 2022, only one in four people in low-income countries used the internet, and the speed of their connection was typically only a small fraction of that in wealthier countries. As businesses in technologically advanced countries integrate generative AI into their products and services, less than half of the businesses in many low- and middle-income countries have an internet connection. The growing digital divide is exacerbating the poverty and productivity gaps between richer and poorer economies. The Digital Progress and Trends Report series will track global digitalization progress and highlight policy trends, debates, and implications for low- and middle-income countries. The series adds to the global efforts to study the progress and trends of digitalization in two main ways: · By compiling, curating, and analyzing data from diverse sources to present a comprehensive picture of digitalization in low- and middle-income countries, including in-depth analyses on understudied topics. · By developing insights on policy opportunities, challenges, and debates and reflecting the perspectives of various stakeholders and the World Bank’s operational experiences. This report, the first in the series, aims to inform evidence-based policy making and motivate action among internal and external audiences and stakeholders. The report will bring global attention to high-performing countries that have valuable experience to share as well as to areas where efforts will need to be redoubled.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.Publication Business Ready 2024(Washington, DC: World Bank, 2024-10-03)Business Ready (B-READY) is a new World Bank Group corporate flagship report that evaluates the business and investment climate worldwide. It replaces and improves upon the Doing Business project. B-READY provides a comprehensive data set and description of the factors that strengthen the private sector, not only by advancing the interests of individual firms but also by elevating the interests of workers, consumers, potential new enterprises, and the natural environment. This 2024 report introduces a new analytical framework that benchmarks economies based on three pillars: Regulatory Framework, Public Services, and Operational Efficiency. The analysis centers on 10 topics essential for private sector development that correspond to various stages of the life cycle of a firm. The report also offers insights into three cross-cutting themes that are relevant for modern economies: digital adoption, environmental sustainability, and gender. B-READY draws on a robust data collection process that includes specially tailored expert questionnaires and firm-level surveys. The 2024 report, which covers 50 economies, serves as the first in a series that will expand in geographical coverage and refine its methodology over time, supporting reform advocacy, policy guidance, and further analysis and research.Publication The Container Port Performance Index 2023(Washington, DC: World Bank, 2024-07-18)The Container Port Performance Index (CPPI) measures the time container ships spend in port, making it an important point of reference for stakeholders in the global economy. These stakeholders include port authorities and operators, national governments, supranational organizations, development agencies, and other public and private players in trade and logistics. The index highlights where vessel time in container ports could be improved. Streamlining these processes would benefit all parties involved, including shipping lines, national governments, and consumers. This fourth edition of the CPPI relies on data from 405 container ports with at least 24 container ship port calls in the calendar year 2023. As in earlier editions of the CPPI, the ranking employs two different methodological approaches: an administrative (technical) approach and a statistical approach (using matrix factorization). Combining these two approaches ensures that the overall ranking of container ports reflects actual port performance as closely as possible while also being statistically robust. The CPPI methodology assesses the sequential steps of a container ship port call. ‘Total port hours’ refers to the total time elapsed from the moment a ship arrives at the port until the vessel leaves the berth after completing its cargo operations. The CPPI uses time as an indicator because time is very important to shipping lines, ports, and the entire logistics chain. However, time, as captured by the CPPI, is not the only way to measure port efficiency, so it does not tell the entire story of a port’s performance. Factors that can influence the time vessels spend in ports can be location-specific and under the port’s control (endogenous) or external and beyond the control of the port (exogenous). The CPPI measures time spent in container ports, strictly based on quantitative data only, which do not reveal the underlying factors or root causes of extended port times. A detailed port-specific diagnostic would be required to assess the contribution of underlying factors to the time a vessel spends in port. A very low ranking or a significant change in ranking may warrant special attention, for which the World Bank generally recommends a detailed diagnostic.