Liu, LiliTan, Kim Song2012-03-192012-03-192009-08-01https://hdl.handle.net/10986/4206This paper surveys methodological issues in subnational credit ratings and highlights key challenges for developing countries. Subnational borrowing from capital markets has been on the rise owing to fiscal decentralization and demand for infrastructure investments. A prerequisite for accessing capital markets, subnational credit ratings have also emerged as a part of broader reform for fiscal sustainability. They facilitate a more transparent budgetary and financial management system. The global financial crisis makes subnational credit ratings more relevant, as they contribute to fiscal risk evaluations and fiscal adjustment. In addition to subnationals own credit strength, the creditworthiness of the sovereign and the intergovernmental fiscal system are among the most critical rating criteria. Implicit and contingent liabilities are integral to the rating process. Indirect debt instruments including off-balance-sheet financing create fiscal risks. The ongoing financial crisis has reinforced the rating focus on the management of liquidity, debt structure, and off-balance-sheet liabilities.CC BY 3.0 IGOACCESS TO CAPITALACCOUNTINGACCOUNTING STANDARDSARREARSBAILOUTSBALANCE DUEBALANCE SHEETBANK FINANCINGBANK LENDINGBANK LOANSBASIS POINTSBENEFICIARIESBIDBONDBOND INDEXBOND PRICESBOND SPREADSBOND YIELDBOND YIELDSBONDSBORROWERBORROWING CAPACITYBORROWING COSTBORROWING COSTSBUDGET DEFICITBUDGET DEFICITSBUDGET SURPLUSESBUDGETINGBUSINESS CYCLESCAPITAL FLOWSCAPITAL INFLOWSCAPITAL INVESTMENTCAPITAL INVESTMENTSCAPITAL MARKETCAPITAL MARKET DEVELOPMENTCAPITAL MARKET FINANCINGCAPITAL MARKETSCAPITAL OUTFLOWSCASH BALANCECASH FLOWCASH INFLOWSCOLLATERALSCOMMERCIAL BANKSCONTINGENT LIABILITIESCORPORATE BONDSCORPORATE DEBTCORPORATE DEFAULTCORPORATE GOVERNANCECOUNTRY CREDITCOUPONSCREDIBILITYCREDIT ASSESSMENTCREDIT MARKETSCREDIT QUALITYCREDIT RATINGCREDIT RATING AGENCIESCREDIT RATING AGENCYCREDIT RATINGSCREDIT RISKSCREDIT SPREADSCREDIT STANDINGCREDIT STRENGTHCREDIT STRENGTHSCREDITORSCREDITWORTHINESSCURRENCY CRISESCURRENCY DEVALUATIONCURRENCY RISKSDEBTDEBT BURDENDEBT CRISISDEBT FINANCINGDEBT INSTRUMENTDEBT INSTRUMENTSDEBT ISSUANCEDEBT ISSUERDEBT ISSUERSDEBT ISSUESDEBT MANAGEMENTDEBT MARKETDEBT OBLIGATIONSDEBT RATIOSDEBT REDUCTIONDEBT SERVICEDEBT SERVICINGDEBT STOCKDEBT STOCK OUTSTANDINGDEBT-SERVICEDEBTSDEFAULT PROBABILITIESDEFAULT RATESDEFAULT RISKDEFAULT RISKSDEFAULTSDERIVATIVE INSTRUMENTSDEVELOPING COUNTRIESDOLLAR BONDDOMESTIC CURRENCYDOMESTIC DEBTDOMESTIC MARKETECONOMIC DEVELOPMENTEMERGING ECONOMIESEMERGING MARKETEMERGING MARKET BONDEMERGING MARKET ECONOMIESEMERGING MARKETSENFORCEABILITYENFORCEABLE CONTRACTSEXCHANGE CONTROLSEXPENDITUREEXPENDITURESFINANCESFINANCIAL CRISESFINANCIAL CRISISFINANCIAL HEALTHFINANCIAL INFORMATIONFINANCIAL INSTITUTIONSFINANCIAL INSTRUMENTSFINANCIAL MANAGEMENTFINANCIAL MARKETSFINANCIAL PERFORMANCEFINANCIAL RISKSFINANCIAL SUPPORTFINANCIAL SYSTEMFISCAL CAPACITYFISCAL DECENTRALIZATIONFISCAL DISCIPLINEFISCAL POLICIESFISCAL POLICYFOREIGN CAPITALFOREIGN CURRENCYFOREIGN CURRENCY DEBTFOREIGN CURRENCY RISKFOREIGN DEBTSFOREIGN MARKETSGLOBAL ECONOMYGOVERNANCE STANDARDSIMPLICIT GUARANTEESINCOME GROWTHINCOME TAXESINFLATIONINFRASTRUCTURE FINANCINGINFRASTRUCTURE INVESTMENTINFRASTRUCTURE INVESTMENTSINSTITUTIONAL INVESTORSINTEREST PAYMENTSINTEREST RATEINTEREST RATE RISKINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL CAPITAL MARKETINTERNATIONAL CAPITAL MARKETSINTERNATIONAL RATING AGENCIESINVESTMENT BANKSINVESTMENT POLICIESLEGAL CONSTRAINTSLEGAL FRAMEWORKLENDERSLIQUIDITYLIQUIDITY MANAGEMENTLIQUIDITY POSITIONLIQUIDITY PROBLEMSLOCAL CURRENCYLOCAL ECONOMYLOCAL GOVERNMENTLOCAL GOVERNMENTSLONG-TERM DEBTMACROECONOMIC MANAGEMENTMARKET PARTICIPANTSMARKET PRICINGMARKET RISKSMARKET VALUEMATURITIESMATURITYMATURITY STRUCTUREMORAL HAZARDMORTGAGEMORTGAGE-BACKED SECURITIESMUNICIPAL INVESTMENTPAYMENT OBLIGATIONSPENSIONPENSIONSPORTFOLIOPRICE RISKSPROBABILITY OF DEFAULTPUBLIC FINANCEPUBLIC INVESTMENTPUBLIC SECTOR DEBTREGULATORY FRAMEWORKREGULATORY FRAMEWORKSREPAYMENTREPAYMENT CAPACITYRESERVESRETURNSRISK ASSESSMENTSRISK MANAGEMENTRISK MANAGEMENT SYSTEMRISK OF DEFAULTSECONDARY MARKETSHORT-TERM DEBTSOFT BUDGET CONSTRAINTSOLVENCYSOVEREIGN BONDSOVEREIGN BONDSSOVEREIGN DEBTSOVEREIGN DEFAULTSOVEREIGN DEFAULTSSOVEREIGN ISSUERSSOVEREIGN RATINGSOVEREIGN RATINGSSOVEREIGN RISKSOVEREIGN RISKSSTAMP DUTIESSUBNATIONAL BOND MARKETTAXTAX SYSTEMTRADINGTRANSFER RISKTRANSPARENCYTREASURIESUSE OF DERIVATIVEVARIABLE INTEREST RATEYIELD SPREADSWorld Bank10.1596/1813-9450-5013