Credit rating downgrades and its impact on a states national economic security

Abstract

In the last 35 years, all three major credit rating agencies (Moody’s, Standard & Poor and Fitch), have downgraded over 17 states to ‘junk status’ from an investment grading, with only 8 states recovering back to an investment grade, which has taken between a 1 to 16 years. Hence, the dreaded rating of ‘junk status’ continues to spark fear, dictating news headlines across the globe, as it is said to have a huge implications on national economy and investment in the country, thus, creating a cycle of high economic insecurity which is challenging to overcome. Therefore, my research aimed to investigate: what ways credit rating downgrades impact upon a state’s national economic security. While there is various research on the impact of credit rating agencies, particularly on emerging economies, there remains a gap in literature drawing on the debate on whether downgrades to junk status by all three major credit rating agencies (Moody’s, S&P, and Fitch), impact upon a state’s national economic security, particularly using a qualitative case study analysis. Hence, my study aimed to investigate and draw the causal pathway between the implementation of ‘junk status’, and a state’s national economic security, which focus on economic indicators of: exchange rate, inflation, FDI, debt and government bonds as a measure. I used 3 case studies: Greece, Brazil, and Azerbaijan, providing an in-depth analysis on the impact of a downgrade to ‘junk status’, using a before and after logic restricted within a 6 month time frame