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Credit ratings: the Government view
Context:
The government has criticised the ‘opaque methodologies’ used by the major global credit rating agencies to arrive at sovereign ratings.
Critique of Credit Rating Methodologies
- Opaque Assessments: Finance Ministry criticizes credit agencies for opaque and discriminatory methodologies favoring developed economies.
- Issues with Fitch Assessment: Highlighted concerns include reliance on foreign ownership, non-transparent expert selection, and unclear parameter weights.
- Impact on Developing Economies: Critique suggests developing nations face challenges in earning credit upgrades due to subjective assessments and arbitrary indicators.
Significance of Sovereign Ratings
- Creditworthiness Definition: Sovereign ratings indicate a government's creditworthiness, influencing global investors and determining borrowing costs.
- Economic Implications: Lower ratings raise borrowing costs for governments and businesses, hindering economic growth and development.
- Developing Country Dilemma: Developing nations, rich in resources but capital-poor, struggle with poor ratings limiting their ability to borrow effectively.
Government's Methodological Criticism
- Subjectivity Concerns: Finance Ministry questions the reliance on qualitative overlays and subjective assessments in credit rating methodologies.
- Weighting Issues: Criticism highlights lack of transparency in conveying assigned weights for parameters, hindering a clear understanding of the assessment process.
- Governance Indicator Controversy: Government challenges the excessive reliance on the composite governance indicator, arguing for a fairer and objective assessment approach.
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