Dilip Ratha	About	Contact
Working to lower remittance fees and provide innovative financing solutions for people, businesses, and governments
Shadow Sovereign Rating
Sovereign risk ratings from agencies such as Fitch, Moody’s, and Standard and Poor’s affect capital flows to developing countries through international bond, loan and equity markets. Sovereign rating also acts as a ceiling for the foreign currency rating of sub-sovereign borrowers. Borrowing costs are higher for lower rated borrowers, especially when rating falls below the investment grade threshold – see Stylized relationship between borrowing costs and the credit rating of sovereign bonds. (See figure.) Listen to a BBC radio interview aired on April 10, 2007. There is a case for helping poor countries obtain credit ratings not so much for sovereign borrowing, but for enabling private entities to access international debt and equity capital. The enormous funding need for poverty reduction can only be met by promoting private-to-private capital flows. This point has been highlighted in Beyond Aid: New Sources and Innovative Mechanisms for Financing Development in Sub-Saharan Africa. Leveraging Remittances for International Capital Market Access, November 2005 Determinants of the distance between sovereign credit ratings and sub-sovereign bond ratings: Evidence from emerging markets and developing economies, July 2017 Sovereign Ratings in the Post-Crisis World: An Analysis of Actual, Shadow and Relative Risk Ratings, October 2013 Shadow Sovereign Ratings for Unrated Developing Countries, September 2010 The rating model of this last paper successfully predicted the rating upgrades of Brazil, Colombia, and Peru, and first-time ratings of Ghana, Kenya, and Uganda in 2007 and 2008. Since then, Albania, Bangladesh, Belarus, Cambodia, Gabon, and St. Vincent and the Grenadines have also been rated—exactly or closely aligned with the predictions in the paper.