Sovereign Credit Rating

A sovereign credit rating is an assessment by a credit rating agency of a national government's ability and willingness to repay its debt. Agencies such as Standard & Poor's, Moody's and Fitch assign these ratings to national governments as well as to states, municipalities and sovereign supported entities, using methodologies similar to those used for corporate credit ratings but placing more weight on a borrower's willingness to repay, since sovereign governments can sometimes claim immunity from debt enforcement under international law. Governments rely on these ratings to attract investors and gain access to international capital markets, a factor especially important for developing countries, and a 2010 study by the International Monetary Fund found that sovereign ratings were generally reliable indicators of default risk, even though agencies have also been criticized for failing to foresee major financial crises in Asia and Europe.