What is a sovereign credit rating and why is it important?

A sovereign credit rating is an assessment of a country’s creditworthiness, given by credit rating agencies like Standard & Poor’s, Moody’s, or Fitch. It reflects the country’s ability to meet its debt obligations and is based on factors such as the country’s economic stability, fiscal policies, and political environment. A high credit rating indicates a low risk of default and often results in lower borrowing costs for the government. Conversely, a low rating may lead to higher interest rates and a higher risk of default. Sovereign credit ratings are crucial for investors, as they influence decisions on investing in government bonds or other debt instruments.