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CareEdge Ratings today unveiled its detailed Sovereign Rating Methodology, which will be used to assess the credit profile of sovereign debt issuers on a global rating scale.  A sovereign rating is an assessment of the sovereign’s ability and willingness to service its debt in full and in a timely manner. 

Speaking on the occasion, Mehul Pandya, MD and CEO, CareEdge Ratings, said, "This is an important step in our journey towards evolving into a global knowledge-based organisation. The ratings assigned using our methodology, in the future, will aid the investors and enhance the diversity of opinions in the market. The understanding of global markets so gained will enable CareEdge Ratings in incorporating such trends in our domestic ratings as well.”

“The Sovereign Rating methodology has been devised post in depth research and deliberations. It also incorporates CareEdge Ratings’ experience and understanding of the credit ratings domain. The methodology is robust and does not differentiate in the treatment of developed and emerging economies on any parameter by applying consistent thresholds across countries. In line with the best global practices, we are seeking feedback from market stakeholders to further enhance our methodology.” adds Mr. Pandya.

CareEdge Sovereign Ratings methodology involves analysis under five broad pillars to determine a sovereign’s creditworthiness. These pillars are Economic Structure & Resilience (25% weightage), Fiscal Strength (25% weightage), External Position & Linkages (16.67% weightage), Monetary & Financial Stability (16.67% weightage), and Institutions & Quality of Governance (16.67% weightage). The assessment of each of these pillars is based on the consideration of historical, current as well as expected future trends.

Explaining the weightage given to five pillars, Rajani Sinha, Chief Economist, CareEdge Ratings said, “The two pillars of Economic Structure & Resilience and Fiscal Strength carry relatively more weight, in the methodology. This is because Economic Structure & Resilience is the foundation of any economy and indicates its ability to grow sustainably and absorb potential shocks. Further, Fiscal Strength reflects the government’s financial discipline, and has a direct bearing on the quantum of sovereign debt. Further, the assessment of these two pillars is relatively more quantitative compared to others”.

The assessment of the five pillars is based on a set of primary and secondary factors, using a mix of quantitative and qualitative indicators. Primary factors are assessed largely based on quantitative indicators, while secondary factors are country specific nuances that bring a qualitative overlay and analytical comprehensiveness.

We welcome any feedback or suggestions on the methodology. You may provide it till Friday, February 16, 2024 to Kiran Kavala (kiran.kavala@careedge.in) and Akanksha Bhende  (akanksha.bhende@careedge.in). We would subsequently publish the final methodology post the feedback.

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