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15.0. Credit Analysis for GOV issuers - Coggle Diagram
15.0. Credit Analysis for GOV issuers
Factors affect credit risk of GOV
Qualitative
(1) GOV institutions & policy
Stable, predictable Executive, Legislative and Judicial Institutions and Policies
Willingness to Pay
Rule of Law
(2) Fiscal Flexibility
Ability to adjust revenue & expenditures
Fiscal discipline
Prudent use of debt
(3) Monetary Effectiveness
Policy Credibility
Ex rate regime
Financial system
Debt market development
(4) Economic Flexibility
Adaptability to Shocks
Growth potential
Competitiveness
Economic Diversification
(5) External Status
Access to external funding
Geopolitical risk
Global currency status
Quantitative
(1) Fiscal strength
Current & Future debt burden
Debt affordability
(2) Economic Growth & Stability
Cyclicality
Economic Growth
Size & Income level
(3) External Stability
Balance of Payment
External Debt Burden
Currency Reserve
Non-Sovereign credit risk
Issuer
Agencies
Characteristics
: Established to carry out a particular government sponsored role
Credit rating
: Similar to the relevant sovereign debt rating
Gov Banks and financing institution
Characteristic
: Set up with a specific gov-sponsored mission
Credit rating
: Similar to the sovereign entity
Supranational issuers
Characteristic
: Set up by groups of sovereign govs to carry out projects with varied missions
Credit rating
: Depends on the implicit support of the sponsored govs and global development institution
Regional gov bond
The majority of local gov bonds, including municipal bonds, are either general obligation bonds or revenue bonds
General obligation (GO) bonds
GO bonds are unsecured bonds issued with the full faith and credit of the issuing entity and are supported by the taxing authority of the issuer
Serviced with taxes and fees collection
Credit analysis of GO bonds is quite similar to that of sovereign bonds
Revenue bonds
Revenue bonds are issued for financing a specific project
Serviced with revenues generated from projects ->Higher credit risk than GO bonds
Credit analysis of revenue bonds is similar to analysis of corporate bonds