Link to the methodology

Methodology update

Scope’s updated sovereign methodology proposes changes to its quantitative model to increase its signalling power by i) assessing all variables against fixed and publicly communicated thresholds, ii) introducing a quantitative political risk adjustment, and iii) adjusting the calculation of select variables.

• Fixed thresholds

We propose to use fixed thresholds for all our variables to identify positive and negative outliers. This change is expected to increase the signalling power of positive (negative) fundamental developments of sovereigns regardless of fundamental developments of other countries in the model and thus enhance the transparency of our approach.

• Governance and Political risk

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. We propose to assess this systematically and quantitatively relying on the World Bank’s Political Stability and Absence of Violence/Terrorism indicator. The proposed assessment can only be negative up to a maximum of -3 rating notches. The remaining five World Bank governance indicators will be used to assess governance as is currently done in the model.

• Other variables

We propose to introduce minor changes to our quantitative model to i) assess GDP per capita on a purchasing-power parity basis rather than on current USD, ii) assess nominal GDP as a share of world GDP, iii) extend the horizon over which we assess real GDP volatility to the past 15 years, iv) adjust the calculation for a sovereign’s biocapacity surplus/deficit to a ratio, and v) replace the WRI’s indicator for natural disaster risks with that of ND-GAIN.

Call for comments

Scope invites investors, issuers, policymakers and other interested parties to comment on the methodology by 14 January 2024, 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.