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2016 Annual Sovereign Default Study and Rating Transitions

In 2016, two defaults occurred among the sovereign obligors that S&P Global Ratings rates. This was one more default than in 2015 and the fifth consecutive year with at least one sovereign default. Including the default, we lowered 24 sovereign ratings and raised nine in 2016. Rating actions were less numerous than in 2015, but the number of downgrades was the highest since 2011.


  • The rank ordering of sovereign ratings has been consistent with historical default experience, and these ratings continue to serve as effective indicators of relative credit risk.
  • Of the 130 active sovereign ratings at the end of 2016, 52% were investment grade.
  • Sovereign ratings generally exhibited greater stability at higher rating levels than at lower levels, as we would expect.
  • The ratio of downgrades to upgrades increased to 2.67x in 2016 from 1.40x in 2015. In addition, the average number of notches of foreign-currency downgrades increased to 1.50 from 1.15. The average number of notches for upgrades remained the same at 1.00.

We track rating movement according to the number of ratings that changed during 2016 as opposed to the number of times a rating changed. For example, this study considers a rating that was lowered twice in 2016 to reflect one lower rating at the end of 2016 than at the beginning of 2016. On the other hand, if a rating was lowered and later raised to the rating at the start of the year, no rating action would appear in this study.

This study is based on long-term sovereign credit ratings. The methodology tracks rating migrations over time and includes revisions to 'SD' (selective default). An 'SD' rating is more common for sovereign issuers than a 'D' rating because defaulting sovereigns often continue to service some of their debt. This is an issuer ratings-based study, as opposed to being based on issue ratings. In other words, we look at the sovereign ratings on the central governments themselves, not the ratings on the individual securities these governments might have issued.

Our metrics treat all issuers equally and are not adjusted for size or influence. Therefore, for the purposes of this study, a default by Argentina counts the same as a default by Mali, even though the latter has a much smaller economy. Our study tracks defaults on a sovereign's commercial debt, including both bonds and bank loans.

Withdrawn ratings (as indicated with the abbreviation 'NR,' which stands for "not rated") are included up until the date of withdrawal. We record defaults after the date of withdrawal if we obtain knowledge of those defaults. As of Dec. 31, 2016, S&P Global Ratings had withdrawn 11 public sovereign ratings: Benin, Cambodia, Gabon, Guernsey, Isle of Man, Kyrgyz Republic, Libya, Madagascar, Mali, Seychelles, and Tunisia. (We reinstated the rating on Guernsey in October 2014.) There are a total of 166 rating records for sovereigns, including those of defaulted ratings.

The number of sovereigns that we rate has grown as more governments access the international bond markets. We have rated 141 sovereigns (foreign currency) since 1975, and 130 of these had active ratings at the end of 2016.

In the 1990s, speculative-grade-rated sovereigns became more common as we started rating smaller and less-diversified economies. The percentage of speculative-grade ratings significantly increased to 37% in 1999 from 3% in 1991. This was mostly a result of new ratings being assigned, as the number of speculative-grade ratings rose to 30 from two, while the number of investment-grade ratings increased to 52 from 29. During 2000-2009, speculative-grade ratings continued to outpace investment-grade ratings, but the latter group grew as well. Speculative-grade ratings increased to 53 in 2009 from 33 in 2000, while investment-grade ratings grew to 70 in 2009 from 54 at the start of the decade. The percentage of speculative-grade ratings was 43% in 2009. During 2010-2016, the number and percentage of speculative-grade ratings increased to 62 and 48%, respectively, while the same for investment-grade ratings declined to 68 and 52%. In 2016, three investment-grade sovereigns were downgraded to speculative grade, while one speculative-grade sovereign was upgraded to investment grade.

Seventy-one of the initial sovereign ratings we have assigned have been speculative grade; we assigned the first to Hungary in April 1992. At the end of 2016, 11 of the 71 sovereigns with initial speculative-grade ratings were rated investment grade, 18 defaulted at some point, and nine had withdrawn ratings. On the other hand, of the 69 sovereigns initially assigned investment-grade ratings since 1975, seven were rated speculative grade at the end of 2016, four defaulted, and three were withdrawn. Of the 130 sovereigns with active foreign-currency ratings at the end of 2016, 68 (52%) were investment grade and 62 (48%) were speculative grade. As of March 17, 2017, three sovereign ratings were rated one notch above speculative grade ('BBB-') with negative outlooks: Kazakhstan, Oman, and South Africa. Among the speculative-grade sovereigns, one was rated one notch below investment grade ('BB+') with a positive outlook: Indonesia and Russia.