By Rachel Croft

What is a sovereign credit rating and why is it important?

A sovereign credit rating is a country’s credit rating as determined by credit rating agencies at the request of that particular country. Credit rating agencies consider a number of factors when determining a country’s credit rating, including such country’s economic and political environment and any associated risks.

From an investor’s perspective, sovereign credit ratings are important as they give investors an insight into the economic and political risks associated with investing in a particular country. From a country’s perspective, particularly developing countries, it is often critical to obtain a good sovereign credit rating in order to attract foreign direct investment and funding in external debt markets.