Learn How to Rate a Country: Check!
Most of us might consider ourselves budding economists. Some of us have heard of ratings agencies but only a small number of us probably know what all the AAA+’s and CC-‘s mean. Well this week, some of us from MacroVenture took the tube down to Canary Wharf to S&P’s global offices to find out what all these ratings agencies actually get up to.
Last Wednesnday, we put on our smart suits and ‘rating’ boots and head down to S&P Global’s head office where Maxim Rybnikov (Associate Director) and Fabio Manfredonia (Sovereign Analyst) took us through how they go about their day to day rating sovereign entities around the world, 130 of them to be exact.
After a quick introduction to the history of S&P’s ratings (which involved plenty of graphs), we got dived right into the the mechanics of rating a country. This being a workshop, we split into four groups each focusing on a nation, of which there was Ethiopia, Czech Republic, Turkey and Macedonia. Scanning through country reports with plenty of data, charts and projected outlooks, we got a taste for the sheer breadth of factors that are considered when a country undergoes assessment. Through these tasks, we were able to appreciate the distinction between Sovereign nations from other debt issuers in assessing ‘credit worthiness’ – when’s the last time you heard of a corporate entity that could raise taxes or print money?
Our analysis of our given country followed the framework used by S&P in that we delved into five broad areas that are considered in order to determine credit-worthiness – institutional, economic, external, fiscal and monetary assessments. Plenty of discussion followed as we compared, debated and (critically) criticised, trying as diligently as we could determine where, on a scale of 1-6, each country sat with regards to each assessment. After each discussion, each group presented their reasoning behind their rating and Maxim would reveal the rating given by S&P’s analysts – although we didn’t always get it right, we often weren’t far off!
The opportunity to discuss our thoughts in small groups was particularly enjoyable, especially as we got to know our respective countries much more intimately and know slightly more of the thrill an analyst must get when intensely researching one nation. For many of us, this session transformed macroeconomics from textbook theory to real-life scenarios, making big terms like government policy, inflation, trends, growth and forecasts feel all the more tangible.
We rounded off the session listening to Ravi Bhatia, an S&P primary analyst, tell us the latest in his project assessing South Africa.
We’re incredibly grateful to S&P for such an insightful workshop- thanks for the food too!
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Until next time.
PR & Marketing Officer for MacroVenture