Credit Analysis for Government IssuersLocked: included in All Access

How credit analysis changes when the borrower is a government: why sovereigns repay from taxes and must be judged on willingness as well as ability to pay, the qualitative and quantitative factors behind a sovereign rating (institutions, fiscal, monetary, economic and external), and how agencies, public banks, supranationals and regional governments, including general obligation and revenue bonds, are assessed.

1. 1. Why government credit is differentGovernments borrow to run fiscal policy and repay from taxes, so a sovereign's credit depends on both its ability and its willingness to pay, and bondholders cannot force it into bankruptcy.Locked: included in All Access11 min
2. 2. Qualitative factors: institutions, policy and the economyA sovereign's credit rests on five qualitative pillars: sound institutions, fiscal discipline, a credible and independent central bank, a diversified economy, and a strong external position, ideally including a reserve currency.Locked: included in All Access14 min
3. 3. Quantitative factors: fiscal strength and economic growthSovereign ratios put debt or interest over GDP or government revenue: higher debt burden and debt affordability ratios mean weaker credit, while a larger, richer, faster and steadier-growing economy means stronger credit.Locked: included in All Access14 min
4. 4. External stability and foreign-currency debtA sovereign without a reserve currency can only service its foreign-currency debt if it holds or earns enough foreign currency, so analysts compare external debt with GDP and with FX reserves, and look hard at where the foreign currency comes from.Locked: included in All Access13 min
5. 5. Agencies, public banks and supranationalsAgencies and government-sponsored banks usually carry the same credit risk as the sovereign that created and supports them, while supranationals are judged on the strength and support of their several sovereign owners.Locked: included in All Access11 min
6. 6. Regional governments: general obligation and revenue bondsA general obligation bond is backed by a regional government's whole taxing power and is analysed somewhat like a sovereign, while a revenue bond depends on one project's cash flows and is analysed like a corporate bond, with debt service coverage at the centre.Locked: included in All Access14 min