Link to the methodology

Methodology update

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

• Fixed thresholds

We introduce 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 to 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 assess this systematically and quantitatively relying on the World Bank’s Political Stability and Absence of Violence/Terrorism indicator. The assessment can only be negative up to a maximum of -3 rating notches. The remaining five World Bank governance indicators are used to assess governance.

• Other variables

We introduce enhancements 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.

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

The Feedback report can be downloaded here.