In this short post today, we will look at the news recently regarding the rating agencies’ declarations regarding two countries’ sovereign debt ratings, what underpins them, and what may be next for countries facing up to the COVID-19 pandemic, amongst a number of other impactful factors. The first news came from South Africa. As was to be expected on account of the other two rating agencies downgrading South Africa to ‘junk status’, Moody’s finally took the leap and cut South Africa’s rating to Ba1, from Baa3, with the outlook remaining negative . In providing details as to why Moody’s finally followed S&P and Fitch in downgrading South Africa to junk status, albeit 3 years later, the agency stated that the key driver underpinning the downgrade was ‘ the continuing deterioration in fiscal strength and structurally very weak growth, which Moody’s does not expect current policy settings to address effectively ’ (sign-in required). The agency then went on to detail the reasoni...

Today’s post reacts to the news today that Standard & Poor’s (S&P) have finally fallen in line with the other members of the rating oligopoly (Moody’s and Fitch) in downgrading China’s sovereign debt rating to A+, which puts it one category below the U.S. The reason for this, according to S&P, is that the growing credit bubble in China is systematically reducing financial stability in the country, which seems to confirm fears that recent moves by the Chinese Government to limit the growth of that particular bubble have not taken hold. However, with the BRICS nations calling for the development of their own major rating agency, the news that some analysts suggest that things are moving in the right direction in China despite the recent downgrade may accelerate the plans of the BRICS nations so that the pace of agency development falls in line with the wishes of the Indian Prime Minister who recently made loud calls for an acceleration in that regard. In this post, then, ...

In today’s post the focus will be on the effect of credit rating agencies in relation to national interests. A recent spate of news articles confirms that rating agencies, with respect to their output, have a demonstrable effect upon the health of a nation state’s future, in spite of analysis that suggests the actual value of their output is limited at best. In 1996, the New York Times Pulitzer-winning Journalist Thomas L. Friedman commented, now famously, that ‘ you could almost say that we live again in a two-superpower world. There is the U.S. and there is Moody’s. The U.S. can destroy a country by levelling it with bombs; Moody’s can destroy a country by downgrading its bonds ’. Whilst many have debated this notion – Professor Frank Partnoy provides a representative example of this – it is worth instead looking at the reality of the situation, rather than the theoretical landscape. To do this, there are a number of clear examples that show, rather counterintuitively, that the ...

This short post is concerned with the attempt by a non-profit organisation to inject some much needed responsibility and care into the credit rating industry. Based on a published article that is available here in its final form in The Company Lawyer , and here in its pre-published and different form, this post will look at the International Non-Profit Credit Rating Agency (hereafter INCRA) and its aims, as well as some of its shortfalls. Ultimately, it is concluded that whilst the endeavour is incredibly worthy and should be praised, the environment is skewed against newcomers to the rating marketplace, and especially those trying to reduce the impact of the venal 'Big Two' – Moody’s, and Standard & Poor’s. INCRA was initially developed by the Bertelsmann Foundation in 2011, organically as a result of its research into the quality of nation states’ quality of governance via its Transformation Index . As such, the newly-imagined rating agency set its sights on...

Speaking yesterday after releasing a global-macro outlook for 2017-18 , the Vice President of the Credit Rating Agency Moody’s, Madhavi Bokil, announced that the Agency expects global activity to maintain its upward curve. However, there were a number of caveats that were attached to the announcement and one of them in particular will be the focus of this short post. Citing the shifts in economic policy emanating from the Trump administration in the U.S., which it suggests would affect the global economy via shifts in its views to trade and interest rates, and the risks associated with a deceleration in China’s economic expansion, Bokil is confident that ‘ destabilising economic and policy dislocations will be minimal ’ in the next few years. However, there is another caveat of Moody’s’ which is of interest when understood with a recent development within Europe. Bokil continued by discussing that the political and fragmentation risks in the E.U. and the European area also pose ...