2 days ago
Credit ratings decoded: How a simple upgrade can change a country's fortune
Recently, S&P Global upgraded India's long-term sovereign credit rating to 'BBB' from 'BBB-', with a stable outlook. This is a step up from the previous investment-grade rating and marks a development for Asia's third-largest agency said the upgrade reflects India's strong economic growth and improved monetary policy environment, which is helping keep inflation in check. It also pointed to the government's continued focus on fiscal consolidation and better quality of spending as reasons for the improved credit profile.S&P added that India's economic resilience in the face of global uncertainties and trade challenges had further strengthened its case for the days earlier, Moody's raised Pakistan's rating by one notch to Caa1 from Caa2, also with a stable outlook. The agency credited an improved external financial position and steady progress under the IMF Extended Fund Facility (EFF) $7 billion, 37-month IMF deal, approved in September 2024, has been a key factor in stabilising its DO CREDIT RATINGS MATTER SO MUCH? Credit ratings play a key role in shaping a country's ability to borrow money and attract investment. When a global rating agency upgrades a country's rating, it signals lower risk for investors, which can lead to cheaper borrowing costs and more foreign investment. A downgrade, on the other hand, can make borrowing more expensive and may even push investors to pull out their money.A credit rating works like a report card for a country's financial health. It tells investors how likely a country is to repay its debts. A higher rating means lower perceived risk, which attracts more investors and reduces the interest rates the government has to pay on loans. This also benefits companies in that country, as they can often borrow at lower example, India's upgrade to BBB could bring more foreign institutional investors into its bond Goenka, Co-Founder of said that the bond market rallied on the news as the improved rating would likely increase foreign inflows.'A higher credit rating systematically gets more investments into the country as risk-adjusted returns are better. We see India to remain in global spotlight for Emerging Market favourable asset allocation and bond yields to fall in the short term,' he borrowing costs, ratings also shape investor sentiment. A strong rating builds trust in a country's economic stability, encouraging long-term Sawrikar, Managing Partner at Artha Bharat Investment Managers, said, 'India's sovereign credit rating upgrade is a pivotal signal for global investors. It highlights the country's macroeconomic resilience, policy continuity, and growing financial maturity, all of which enhance its appeal for foreign capital, particularly in the private credit space.'He added that while global geopolitical issues and trade tensions could cause short-term market swings, the upgrade confirms India's structural strength and focus on sustainable short, a better credit rating makes it cheaper and easier for a country to raise funds, improves investor confidence, and can have a ripple effect across the economy. A downgrade does the opposite, increasing costs, reducing inflows, and making it harder to attract new investment.- EndsMust Watch
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