Sovereign Credit Rating

What is a 'Sovereign Credit Rating'

A sovereign credit rating is the credit rating of a country or sovereign entity. Sovereign credit ratings give investors insight into the level of risk associated with investing in a particular country and also include political risks. At the request of the country, a credit rating agency will evaluate the country's economic and political environment to determine a representative credit rating. Obtaining a good sovereign credit rating is usually essential for developing countries in order to access funding in international bond markets.

BREAKING DOWN 'Sovereign Credit Rating'

Another common reason for obtaining sovereign credit ratings, other than issuing bonds in external debt markets, is to attract foreign direct investment. To give investors confidence in investing in their country, many countries seek ratings from credit rating agencies like Standard and Poors, Moody's, and Fitch to provide financial transparency and demonstrate their credit standing.