Subnational Credit Ratings: A Comparative Review

46 Pages Posted: 20 Apr 2016

See all articles by Lili Liu

Lili Liu

World Bank - Poverty Reduction and Economic Management Network (PREM)

Kim Song Tan

affiliation not provided to SSRN

Date Written: August 1, 2009

Abstract

This paper surveys methodological issues in subnational credit ratings and highlights key challenges for developing countries. Subnational borrowing from capital markets has been on the rise owing to fiscal decentralization and demand for infrastructure investments. A prerequisite for accessing capital markets, subnational credit ratings have also emerged as a part of broader reform for fiscal sustainability. They facilitate a more transparent budgetary and financial management system. The global financial crisis makes subnational credit ratings more relevant, as they contribute to fiscal risk evaluations and fiscal adjustment. In addition to subnationals' own credit strength, the creditworthiness of the sovereign and the intergovernmental fiscal system are among the most critical rating criteria. Implicit and contingent liabilities are integral to the rating process. Indirect debt instruments including off-balance-sheet financing create fiscal risks. The ongoing financial crisis has reinforced the rating focus on the management of liquidity, debt structure, and off-balance-sheet liabilities.

Keywords: Debt Markets, Banks & Banking Reform, Bankruptcy and Resolution of Financial Distress, Access to Finance

Suggested Citation

Liu, Lili and Tan, Kim Song, Subnational Credit Ratings: A Comparative Review (August 1, 2009). World Bank Policy Research Working Paper No. 5013, Available at SSRN: https://ssrn.com/abstract=1447206

Lili Liu (Contact Author)

World Bank - Poverty Reduction and Economic Management Network (PREM) ( email )

Washington, DC 20433
United States

Kim Song Tan

affiliation not provided to SSRN

No Address Available

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