Do Economic Growth, Human Development and Political Stability favour sovereign Creditworthiness of a Country? A Cross Country Survey on Developed and Developing Countries

摘要

One of the challenges face a country or firm when deciding to lend a foreign country or firm is how to appraise thecreditworthiness of that firm or country? It is experienced and commonly use of credit ratings established by Credit RatingAgencies (Moody’s, Standard and Poor’s and Pitch) as the yardstick for sovereign creditworthiness appraisal, these will be thesecondary or an appeal instrument for appraising creditworthiness. This study established local based factors that will be usedas pre-requites factors or benchmark for lending decisions of a country or a firm. The level of economic growth, humandevelopment and political instability of a country borrowing found to affect the ability of paying its debt obligations. The studyused cross country survey strategy for generalization purpose. Twenty countries used from both developed and developing, tencountries from most risk and another ten countries from least risk countries. The multivariate multiple regressions model usedto analyzed data with the aid Minitab 16.1 software. The findings of the study are that, GDP per capita, GDP growth,government budget, current account balance and inequality-adjusted index are negatively related to the probability of a countryto dishonor its debt obligations. The unemployment rate, inflation rate and political instability index found to be positivelysupport the probability of a country to dishonor its debt obligations. It is recommended that countries lending a foreign countryor firm based on abroad should adhere to these pre-requisite factors for creditworthiness appraisal. These factors should be usedas basic guidelines for assessing the probability of default of a country in lending decisions.