Link to the methodology

Methodology update

Scope’s updated sovereign methodology provides additional information on its treatment of official sector financial assistance and exceptional political risks and proposes minor changes to its quantitative model.

• Treatment of official sector financial assistance

Here we look at sovereigns in discussions with the official sector regarding financial assistance, either on an ad hoc basis, or via established frameworks and initiatives. Key credit relevant questions include whether i) official sector assistance is contingent on policy reforms only; ii) the assessments of gross financing needs and debt sustainability analysis are conducted before or after the request for private sector involvement; and iii) the official sector considers that potential burden sharing between official and private sectors is voluntary or not. Circumstances will be assessed on a case-by-case basis.

• Treatment of exceptional political/conflict risks

Political risks relate to domestic and external conflicts, including wars or tensions with or in neighbouring countries, and may have a material negative impact on sovereign creditworthiness beyond the governance risks highlighted in our scorecards. In instances where this risk driver is assessed as material, we will make a negative adjustment to the final rating. Circumstances will be assessed on a case-by-case basis.

• Quantitative model

We propose to introduce minor changes to our quantitative model to i) remove current bias in our calculations of economic growth and public debt scores; ii) better assess revenue mobilisation of sovereigns and transition risks; iii) increase the weight of demographics and governance; vi) substitute the time series for income inequality; v) remove the change in gross financing needs for data availability reasons; and vi) remove the debt trajectory variable given its lag and volatility.

Call for comments

Scope invites investors, issuers, policymakers and other interested parties to comment on the methodology by 4 September 2022, as part of the agency’s ongoing commitment to transparency and open dialogue with market participants.

Please send your comments to consultation@scoperatings.com

Scope will review market participants’ comments on the proposed methodology and will publish the final version of this rating methodology report thereafter.

The ‘Sovereign Ratings – Call for Comments’ is available for download at www.scoperatings.com or on this link.