Credit Rating Agencies And Their Effect On The Global Economy

Here is my latest article entitled Credit Rating Agencies And Their Effect On The Global Economy.

Below is an excerpt

Credit ratings, while they can be a potentially positive part of the financial industry, can also have a negative effect on the economic policy of countries. This is especially true for developing nations.

For countries that take out loans, “a rating downgrade has negative effects on their access to credit and the cost of their borrowing.” [6] This could potentially force a government to have to borrow money at a higher interest rate and thus scale down its plans for economic development. The problem that this poses for developing nations is that the only way to increase their credit score is to follow the “orthodox policies [that focus] on the reduction of inflation and government budget deficits” [7] which is favored by such organizations as the IMF and the World Bank. The alternative, which would be to avoid a rating downgrade in the first place, is even worse as it could lead “borrowing countries [to] adopt policies that address the short-term concerns of portfolio investors, even when they are in conflict with long-term development needs.” [8]