[Economic term] sovereign credit rating

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The economic term of the day is sovereign credit rating.

It is a rating that an international credit rating agency evaluates and indicates a country's ability and level of intention to fulfill government debt, and serves as a standard for judging borrowing interest rates and investment conditions in the international financial market.

Famous international credit rating agencies, such as S&P in the US, Moody's, and Fitch in the UK, comprehensively consider political factors such as the stability of the country's political system and national security risks, as well as economic factors such as economic growth rate, external debt size, and external debt default experience. This evaluates the sovereign credit rating.

Sovereign credit rating is divided into foreign currency and domestic currency debt ratings depending on the currency in which government debt is denominated, and are divided into short-term debt ratings and long-term debt ratings depending on the maturity structure. In addition, depending on credit rating, it is largely divided into investment grade and speculation grade, and investing in a country with a credit rating equivalent to speculative grade can be said to be that risky.

Meanwhile, sovereign credit rating is a standard for determining the individual credit rating of companies or financial institutions within a country. Therefore, if the sovereign credit rating is adjusted upward, the government of the country, as well as companies and financial institutions, can raise foreign currency funds at a lower additional interest rate (risk premium), thereby significantly reducing foreign currency borrowing costs.

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