Data Sources
Using the Right Data Sources
Data and its usage are the lifeblood of the credit rating system and the relationship between the Sovereign Issuer and the Investor. In order for the investor to understand the risk that accompanies their investment in the sovereign, a variety of information and subsequent metrics are needed. For the credit rating agencies, their complex methodologies rely on timely and accurate information derived from an array of sources. Through the solicited rating process a credit rating agency will inject data directly from the Sovereign Issuer, in conjunction with data that is publicly available. As the Sovereign will be submitting data both publicly and also to a variety of multilateral and non-Profit organisations at the same time, there is a need to remain focused on providing efficient and effective data. The credit rating agencies rely heavily on publicly-compiled data from the likes of the International Monetary Fund (IMF) so it is important for the Sovereign to liaise with the IMF as openly and timely as they can. In this section of the Portal, there are links and details provided for the main sources of information and data that get fed into the credit rating processes. The credit rating methodologies of the international CRAs have been combed for references to specific data sources, as well as utilising anecdotal experience. The list is not exhaustive, but representative.
Data Sources
The Limitations of Credit Rating Agency Methodological Transparency
Credit rating methodological transparency is the most called-for reform affecting the credit rating agencies. Even though after the Global Financial Crisis all three now publicly publish their methodologies, full transparency has not yet been achieved. The base structure of the methodologies is now visible, and there are varying levels of transparency concerning the data that goes into the credit ratings. Whilst it would be helpful for Sovereign Issuers to know absolutely what metrics they were being rated on, this information is never made fully public. Options are available to an Issuer, in the sense that Ancillary Services can be purchased to learn more from the CRAs themselves, but even then it is not fully open. Research has unanimously confirmed that there is a large amount of subjectivity within sovereign ratings especially, and that subjectivity means it is not an exact science. This has a natural effect on knowing what metrics are to be used before the rating is developed. There are standards which are used across the board, either by declaration or anecdotal evidence from former analysts. Resources like the IMF and the World Bank are mainstays for credit analysis, so Sovereign Issuers should really ensure that the Multilateral Agencies have a complete picture of the Sovereign as that data gets directly plugged into sovereign rating methodologies. However, there are a variety of others, and these then become much more opaque.