Sovereign & sub-sovereign

The purpose of Sovereign & Sub-Sovereign ratings is to analyze the ability and willingness of sovereign or sub-sovereign governments (including regions, provinces, local governments, and any other sub-level of sovereign government) to meet their financial obligations in time and form.

Sovereign

We consider a sovereign government as a State that manages its own resources and has the capacity to make its own fiscal, monetary, and political decisions, excluding decentralized agencies, and government related entities (GREs).

Our approach

The rating is compiled by a quantitative analysis, in which the socioeconomic situation and financial profile are studied in detail, as well as a qualitative analysis, in which we analyze whether the institutional framework and the governmental situation meet the necessary conditions to maintain a scenario of prosperity and economic stability.

Both pillars provide a preliminary score that could be adjusted (upwards or downwards) considering forecasts, geopolitical risks, and other factors as, for example, high liquidity or excessive debt.

Furthermore, we account for past and future developments, including forecast in our analysis, with the aim of measuring long-term credit quality, accounting the impacts of normal cycles of the economy (through the cycle).

Sub-sovereign

We consider as sub-sovereign government the regional and local governments (RLGs) entrusted with the provision of some level of public services (education, health, among others), as well as resources recognized by law (mainly taxes, fees and transfers received from the sovereign government). However, decentralized bodies and government related entities (GREs) of the RLGs are not taken into account.

Our approach

Similar to Sovereign ratings, the rating process is divided into a quantitative analysis, related to the ability to respond to its obligations, and a qualitative analysis, regarding its willingness to do so.

Both pillars provide a preliminary score that can be adjusted (upwards or downwards) considering forecasts, government composition, and sovereign support. Moreover, we establish a country ceiling with the sovereign rating due to the interdependence between the sovereign and the sub-sovereign government, although considering certain exception detailed in our methodology.

Furthermore, we account for past and future developments, including forecast in our analysis, with the aim of measuring long-term credit quality, accounting the impacts of normal cycles of the economy (through the cycle).

Sovereign calendar 2022