Changes in sovereign ratings to be released every month for the next six months; formula to be made public later
The Comparative Rating Index for Sovereigns (CRIS), developed by a team of finance ministry officials led by chief economic advisor Kaushik Basu, is set to be institutionalised in the next six months.
Basu told Business Standard the CRIS data would be released every month for the next six months. Thereafter, the formula on the basis of which the whole process was being conducted would be disclosed.
Another ministry official associated with the exercise said the idea was to take it beyond the ambit of a research exercise and develop it into a proper rating model. He added the monthly CRIS ratings to be announced would capture the changes in ratings of the countries due to any new data coming in during the intervening periods.
The official said that ratings of all the 101 countries taken up for creating the model would be made public when the next set of data based on CRIS findings would be released. The next release of CRIS ratings is likely to be announced in the next few days.
Though CRIS was part of the Economic Survey, the ratings of only a few countries had been taken into account to explain the effort, and the formula had also not been disclosed.
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Basu is on a six-month extension at present till August and institutionalisation of CRIS before he leaves the finance ministry would obviously be a satisfying experience for him.
“The plan is to use the formula and give out CRIS scores of nations at regular intervals in order to help investors make better decisions and, in turn, for nations to evaluate themselves more effectively,” the Economic Survey for 2012 tabled in Parliament on March 15, had pointed out.
It said the precise mathematical formula for the CRIS, and hence the paper ‘The Relativity of Sovereigns: A New index of Sovereign Credit Ratings and an Analysis of How Nations fared over the Last Six Years’ was confidential, but its broad idea was easy to explain.
“It should first be clarified that its computation is based on nothing apart from standard ratings data and data on the GDPs of different nations in order to determine the importance or weights of different nations,” said the survey.
The researchers from the economic division of the finance ministry have settled on Moody’s foreign currency credit ratings and the International Monetary Fund’s GDP statistics, with no purchasing power parity correction as inputs for CRIS. Each nation’s CRIS is constructed using these two sets of numbers.
The exercise is an effort to go beyond the standard credit ratings and address the need of investors to know how a country is doing in comparative terms.
One nation’s improvement in CRIS is invariably accompanied by worsening of the CRIS for some other nation or nations.
According to the CRIS chart of 101 nations covered in the survey, countries with the high increases from 2007 to 2012 are Uruguay (25.12 per cent), Bolivia (24.72 per cent), Indonesia (20.75 per cent), Philippines (16.77 per cent), Peru (15.56 per cent) and Brazil (14.37 per cent).