Credit Rating Agencies and Sovereign Debt: Four Proposals to Support Achievement of the SDGs
The COVID-19 pandemic heightened fiscal strain in developing countries, triggering disproportionate sovereign credit downgrades and discouraging participation in debt relief programs. Three key challenges include: the procyclical and subjective nature of ratings, inadequate treatment of international debt support, and insufficient integration of long-term risks like climate change.
To address these, four proposals are advanced: increase transparency, introduce long-term ratings, enhance dialogue between CRAs and the public sector, and reduce reliance on rigid investment-grade thresholds. Structural reforms, such as model-based public ratings, may also help improve credibility and competition.
Global cooperation and investor engagement are essential to align sovereign credit assessments with sustainable development goals.
