Finance Ministry Develops Comparative Rating Index of Sovereigns (CRIS); A New Index of Sovereign Credit Rating


January 31, 2012:

Major credit rating agencies give out the sovereign credit rating of each nation as an absolute grade. How other nations fare does not matter in a particular nation’s rating score. This is very different from a comparative rating. When an investor searches across nations for a place to put her money, the relative rating of nations is important. If nation i’s rating remaining the same, other nations’ ratings improve over time, there may well be a case to invest less in nation i.

Over the last five years, the global economy has gone through lots of highs and lows. Nations have moved up and down the ratings ladder. This makes it entirely possible that a particular nation that has had no rating change may now be better off or worse off in comparative terms. Also, a nation that has travelled down the rating ladder in absolute terms may be, in relative terms, better off because others have done even worse. Since, for investors, relative or comparative rating is such an important concept, it was felt that the Ministry of Finance ought to develop a new index which captures precisely this idea. Accordingly, the new index that has been developed is called the “Comparative Rating Index for Sovereigns” (CRIS).



The computation of CRIS is based on nothing apart from Moody’s ratings and data on the GDPs of different nations as given by the IMF. In the paper we define CRIS formally and then track how nations have done over time. In order to capture this impact, the Ministry of Finance developed a new system for comparing the relative ratings of sovereign debt based on the historical evolution of their ratings over five years and the volume of their economic activity as measured by their GDP (not adjusted for Purchasing Power Parity (PPP)). The Finance Ministry develops a relative rating index and rank 101 economies according to this for the years 2007 to 2011. The index uses external data on GDP and ratings combined in terms of pure mathematical and statistical methods without interventions or interpretations.

The Moody’s ratings that the Ministry has used for all countries are the long term foreign currency sovereign ratings. To clarify, the Moody’s rating by this measure for India in 2007 and 2011 was the same (Baa 3). The CRIS score for these years for India were 66.47 (2007) and 69.83 (2011).

In other words, in relative terms India has become a better investment destination by 5.06%. In addition, India’s rank in terms of CRIS has moved up from 61st to 55th. If we view the rankings in terms of quintiles (blocks of one-fifth of the distribution) India moves from the fourth quintile to the third, that is, the middle quintile.

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