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2016 Annual Sovereign Default Study and Rating Transitions


These ESG Trends will Shape 2019, Sustainability Experts Say

S&P Global Ratings

COP24 Special Edition Shining A Light On Climate Finance

S&P Global Ratings

S&P Global Ratings' Global Outlook 2019

S&P Global Platts

Energy: What to Watch in 2019

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.

Listen: These ESG Trends will Shape 2019, Sustainability Experts Say

Progress on corporate disclosures. A looming talent shortage. Climate change mitigation. These are among the top trends that sustainability experts predict will shape the ESG landscape in 2019. In the inaugural episode of ESG Insider, a new podcast from S&P Global, co-hosts Esther Whieldon and Lindsey White speak to several ESG leaders about the key themes they are watching this year, including Rakhi Kumar, State Street Global Advisors’ head of ESG investments and asset stewardship, Mindy Lubber, CEO and president of Ceres, and Libby Bernick, Trucost managing director and global head of corporate business.

"ESG investing is no longer a sideshow," State Street Global Advisors Inc.'s Rakhi Kumar said in the inaugural episode of ESG Insider, which will focus on environmental, social and governance issues.

Kumar, SSGA's head of ESG investments and asset stewardship, also highlighted the importance of leadership teams setting goals around issues like diversity to achieve progress toward building more sustainable businesses in the long term.

Some other takeaways:

Why companies are starting to pay more attention to the physical risks of climate change

Amid an increase in extreme weather events such as hurricanes, droughts and heat waves, companies are beginning to take a closer look at how climate change could threaten their operations and even their bottom line, said Libby Bernick, Trucost managing director and global head of corporate business.

"It's not just 'what's my company's impact on climate,' it's 'what's climate's impact on my company,'" Bernick said.

Trucost is a research group within S&P Global Market Intelligence that assesses business risks related to climate change and other ESG factors.

Companies are responding to investor pressure to tackle sustainability issues

Investor pressure has already prompted a number of companies to step up their environmental efforts, particularly those tied to climate change and water shortages, according to Ceres President and CEO Mindy Lubber. Ceres is an organization that helps coordinate sustainability discussions between major companies and shareholders.

Lubber expects the momentum will continue in 2019 with companies beginning to tackle climate-related issues in a "more concentrated, focused, systemic way."

To read more of S&P Global's coverage of sustainability issues, you can subscribe here to receive our weekly ESG Insider newsletter.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

COP24 Special Edition Shining A Light On Climate Finance


− Green loans are evolving, with the Climate Bond Initiative forecasting nearly $1 trillion in green bond issuance by 2020.

− Despite the uptick in green bond and loan issuance, the market still remains relatively small, especially compared to the universe of assets comprising CLO 2.0 transactions.

− In our view, a green CLO market has large growth potential, boosted by regulatory initiatives and emerging interest from both issuers and investors in 2018.

− We built a hypothetical rating scenario for a green CLO to compare and contrast the underlying portfolio and structure with a typical European CLO 2.0 transaction.

− Our hypothetical green CLO analysis showed that green loans may have different fundamental characteristics to corporate loans, such as lower asset yields, higher credit quality, and higher recovery rates assumptions.

The global collateralized loan obligation (CLO) market has experienced a rebirth (2010 in the U.S. and 2013 in Europe). New issuance continues to increase due to investor familiarity with the product, as well as low historical default rates. While a market for green assets, such as green loans and bonds has been established for a while, although still of a relative size, a sustainable securitization market is still in its infancy. Considering the challenge in financing the amounts, S&P Global Ratings expects green CLOs to play a role in increasing the private sector presence in the sustainable finance market.

Following the Paris Agreement that came into force in November 2016, 184 parties have ratified the action plan to limit global warming. For this purpose, developed nations have pledged to provide $100 billion (about €87 billion) annually until 2025. As part of this deal the EU has committed to decrease carbon emissions by 40% by 2030. In March 2018 the European Commission (EC) proposed the creation of environmental, social, and corporate governance 'taxonomy', regulating sustainable finance product disclosures, as well as introducing the 'green supporting factor' in the EU prudential rules for banks and insurance companies.

Read the Full Report

S&P Global Ratings' Global Outlook 2019

 A deep dive into S&P Global Ratings’ insights on the credit outlook for 2019 and what are the risks and vulnerabilities to look out for.

Access all the Global Outlook
Read More

Energy: What to Watch in 2019


S&P Global Platts Analytics Issues Two Special Reports

Pricing across the global energy markets will face headwinds in 2019, with a weaker and more uncertain macroeconomic framework deflating price formation in general, according to two special reports just issued by S&P Global Platts Analytics. Such headwinds will require the industry and portfolio managers to take a big-picture approach.

See the Executive Summary of the S&P Global Platts Analytics special report 2018 Review and 2019 here. Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here.

"One of the key lessons learned in 2018, painfully by some, is that market sentiment can shift violently without much change in fundamentals, requiring a steady, holistic perspective," said Chris Midgley, global head of analytics, S&P Global Platts. "It is clear that this volatility will remain a feature across the energy markets in 2019, particularly as IMO 2020 nears."

Particularly blustery headwinds are in store for markets where prices finished 2018 at elevated levels, and well above costs, such as North American natural gas and global coal. However, if the supply side can adjust to the reality of slowing demand growth, energy prices can find support. For natural gas liquids (NGLs), the ongoing logistical constraints at the US Gulf Coast are likely to manifest on continued price volatility, particularly for ethane and liquid petroleum gas (LPG), over the next year despite strong global demand.

LPG, such as propane and butane and used in transportation fuel, refrigeration, heating and cooking, is rapidly facing US export capacity constraints, especially along the US Gulf Coast. For LPG feedstock propylene, there is clear potential for high volatility globally over the next 12-18 months.

Analysts at S&P Global Platts see weakening prices of Henry Hub natural gas. The slowdown in US demand growth will exceed that of supply. But if winter temperatures prove to be colder than normal, near-term prices will need to move higher to bring on enough supply to replenish depleted storage levels.

For global liquefied natural gas (LNG), it will be end-user-backed LNG demand that faces particular struggle to cope with the speed and force of new supply entering the market in 2019. Non price-responsive demand in Asia will be easily met and JKM spot physical prices (reflecting LNG as delivered into Japan, Korea and China) will sag next year.

Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here. Among the 22 key take-away themes:

  • NGL supply growth will strain the North American energy system
  • Saudi Arabia will need to be nimble to balance 2019 oil supply
  • US oil supply limited by pipelines
  • Oil demand slowing: trade war, industrial slump
  • 2019 LNG supply additions largest since the Qatari mega-trains
  • US gas supply growth to exceed demand growth even with LNG exports
  • Global solar growth slowing
  • Shipping disruption looming - IMO 2020
  • New Russian gas pipeline advantage over Ukraine
  • US coal demand to decline again in 2019
  • Growth in new refineries and complex capacity likely to weigh on refinery margins especially in Asia

Year 2019 will certainly be one of transition for crude and refined oil products as it will lead into 2020 when roughly three million barrels per day of high-sulfur fuel oil must be “destroyed” (including enhanced usage of HSFO in power generation) due to the International Marine Organization (IMO) mandate of eco-friendly shipping fuels in use at sea. A similar amount of middle distillate/low sulfur fuel must be created (by refinery changes and by running more crude oil. The increase in refinery capacity between now and 2020 is large, but mostly needed to cover normal demand growth. Expect prices of light sweet crudes to be bid up in 4Q19.