Determinants & Impact of Sovereign Credit Ratings

The purpose of this study is to investigate the factors that determine credit ratings provided by the top three credit rating agencies: Fitch Rating, Moody's, Standards and Poor. Key component analysis is Sused to determine the common factors affecting these components. A systematic analysis is used to determine the effect of the changes involved in these factors. Of the many variables used, the set of explanatory variables chosen in this study is very important in describing credit ratings. That said, six variables appear to be most relevant in determining a country's credit rating. The results show that sovereignty ratings are primarily affected by per capita income, government income, real exchange rate fluctuations, inflation and debt history.The study also highlighted the importance of corruption as measured by Transparency International's Corruption Awareness Index, which appears to be indicative of the country's economic growth and good governance