engleski

Do long-term sovereign debt ratings follow business cycles in Croatia?

Rating agencies are one of the most significant participators in the financial system, which are able to influence economic movements and trends. Their fundamental task is to evaluate the credit risk or give opinions about the possibility of fulfilling obligations as well as the credit rating of the evaluation subject. When sovereign debt is in question, the rating agencies' evaluations are based on the use of a number of economic indicators like per capita income, growth in GDP, inflation rate, fiscal and internal lack of balance, external debt, economic growth, history of fulfilling obligations and various social and political variables. However, this paper's fundamental idea is that rating agencies should take into consideration economic cyclic movements in their analyses. It is a usual reproach that in their analyses they are not directed toward the future and cycles, although they claim to be. To show everything aforementioned on the example of the Republic of Croatia, the research has shown that the connection between the sovereign debt rating and the chosen cyclic indicators is firmer in times of crises than in times of expansion and that rating agencies behave much more restrictively in the period of crises compared to the period of expansion, i.e. it can be concluded that Croatian long-term sovereign debt ratings do not consistently follow the business cycles.

business cycles, Croatia, long-term sovereign debt rating, rating agencies

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