Sovereign Ratings and Oil-Producing Countries: Have Sovereign Ratings Run Ahead of Fundamentals?

29 Pages Posted: 2 Jun 2008

See all articles by Robert V. Breunig

Robert V. Breunig

Australian National University (ANU) - Crawford School of Public Policy; Tax and Transfer Policy Institute (Crawford School of Public Policy, ANU); IZA Institute of Labor Economics

Tse Chern Chia

Australian National University, Research School of Social Sciences (RSSS) - Economics Program

Abstract

We investigate whether rising oil prices have resulted in over-rating of oil-producing countries by rating agencies, after controlling for fundamentals. Based on a large dataset of countries from Standard and Poor's and Moody's, we find strong statistical evidence of a large ratings premium-nearly two notches-for those oil-producing countries with a large share of net oil revenue to gross domestic product, relative to countries with similar economic fundamentals. We have some limited forecast information from the rating agencies and the effect increases when we include this information, providing further evidence that this ratings premium is not driven by expected improvements in fundamentals. This finding has significant implications for asset prices in oil-producing countries and highlights the risk that in the event of a sharp unanticipated drop in oil prices, sovereign rating downgrades of oil-producing countries could be sharper than the deterioration in their economic fundamentals.

Keywords: Oil-producing countries, sovereign ratings, panel data

JEL Classification: C23, C25, E44, F30, G15

Suggested Citation

Breunig, Robert V. and Chia, Tse Chern, Sovereign Ratings and Oil-Producing Countries: Have Sovereign Ratings Run Ahead of Fundamentals?. Available at SSRN: https://ssrn.com/abstract=1138494 or http://dx.doi.org/10.2139/ssrn.1138494

Robert V. Breunig (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia
61261252148 (Phone)

HOME PAGE: http://https://crawford.anu.edu.au/crawford_people/content/staff/rbreunig.php

Tax and Transfer Policy Institute (Crawford School of Public Policy, ANU) ( email )

Canberra
Australia

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Tse Chern Chia

Australian National University, Research School of Social Sciences (RSSS) - Economics Program ( email )

HC Coombs Building
Australian National University
Canberra, Australian Capital Territory 0200
Australia

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