Examining the Factors Affecting Sovereign Credit Rating of Gulf Cooperation Council Countries

Abstract

Despite the controversy surrounding the credibility of credit rating agencies’ rating systems, these agencies' ratings still play a crucial role in determining the premium paid by governments on their bonds. As a result, obtaining a high sovereign credit rating would lower borrowing costs and more demand for their bonds. In order to do so, policymakers should be aware of the factors that mostly affect the sovereign credit rating of their countries. While there are many factors credit rating agencies consider when assigning a sovereign credit rating for any country, this study aims to identify the factors that mostly affect Gulf Cooperation Council (GCC) countries’ sovereign credit ratings assigned by the biggest three credit rating agencies, Standard and Poor’s (S&P), Moody’s, and Fitch. This study is based on the Gulf Cooperation Council (GCC) data 2012–2018. Results obtained from this research show that interest rate, government debt to GDP ratio, GDP per capita, and the labeling of the country as developed or developing country was the variables that mostly affect the S&P rating. GDP per capita and government debt to GDP were the factors that most influenced Moody’s scores. In contrast, GDP, interest rate, transparency score, government debt to GDP, and GDP per capita were the factors that most affect Fitch's credit rating scores. The results also revealed that in 2018, Kuwait was the most overrated country, while Oman was the most underrated country.