At the 65th CFA Institute Annual Conference, Fitch Ratings Group Managing Director David Riley discussed the critical factors for evaluating sovereign credit. In particular, Riley drew upon lessons learned in the ongoing European sovereign debt crisis.
Here are some of the key questions he highlighted that are used by Fitch in evaluating sovereign credit:
- Can a sovereign exercise primary authority over a recognized jurisdiction? More specifically, does it wield the power of violence? Can it collect tax? Does it have the ability to print money?
- What is the probability of default on its public debt? In answering that question past defaults can be useful.