Shadow Sovereign Ratings for Unrated Developing Countries

37 Pages Posted: 20 Apr 2016

See all articles by Dilip Ratha

Dilip Ratha

World Bank

Prabal De

New York University

Sanket Mohapatra

Indian Institute of Management, Ahmedabad

Date Written: June 1, 2007


The authors attempt to predict sovereign ratings for developing countries that do not have risk ratings from agencies such as Fitch, Moody's, and Standard and Poor's. Ratings 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. As of the end of 2006, however, only 86 developing countries have been rated by the rating agencies. Of these, 15 countries have not been rated since 2004. Nearly 70 developing countries have never been rated. The results indicate that the unrated countries are not always at the bottom of the rating spectrum. Several unrated poor countries appear to have a B or higher rating, in a similar range as the emerging market economies with capital market access. Drawing on the literature, the analysis presents a stylized relationship between borrowing costs and the credit rating of sovereign bonds. The launch spread rises as the credit rating deteriorates, registering a sharp rise at the investment grade threshold. Based on these findings, a case can be made in favor of helping poor countries obtain credit ratings not only for sovereign borrowing, but for sub-sovereign entities' access to international debt and equity capital. The rating model, along with the stylized relationship between spreads and ratings can be useful for securitization and other financial structures, and for leveraging official aid for improving borrowing terms in poor countries.

Keywords: Economic Theory & Research, Country Strategy & Performance, Financial Intermediation, External Debt, Inequality

Suggested Citation

Ratha, Dilip and De, Prabal and Mohapatra, Sanket, Shadow Sovereign Ratings for Unrated Developing Countries (June 1, 2007). World Bank Policy Research Working Paper No. 4269, Available at SSRN:

Dilip Ratha

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Prabal De

New York University ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Sanket Mohapatra (Contact Author)

Indian Institute of Management, Ahmedabad ( email )

IIM Old Campus
Ahmedabad, Gujarat 380015

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics