articles Ratings /ratings/en/research/articles/220503-default-transition-and-recovery-sovereign-ratings-performed-better-in-2021-but-remain-weaker-than-before-t-12352567 content esgSubNav
In This List

Default, Transition, and Recovery: Sovereign Ratings Performed Better In 2021 But Remain Weaker Than Before The Pandemic


Default, Transition, and Recovery: The Global Corporate Default Tally Rises To 31 With The First Bankruptcy Of 2022


Credit Trends: U.S. Corporate Bond Yields As Of May 11, 2022


Credit Trends: Risky Credits: The Number Of European 'CCC' Issuers Rises, While Liquidity And Leverage Indicators Point To Potential Future Stress


Default, Transition, and Recovery: 2021 Annual U.S. Corporate Default And Rating Transition Study

Default, Transition, and Recovery: Sovereign Ratings Performed Better In 2021 But Remain Weaker Than Before The Pandemic

(Editor's Note: For more detail on sovereign ratings performance in 2021, please see "2021 Annual Global Sovereign Default And Rating Transition Study," published May 4, 2022.)

Sovereign ratings were much more stable in 2021 after the onset of the COVID-19 pandemic led to a sharp rise in defaults and downgrades in 2020. But with the growing number of speculative-grade ratings and the sharp fiscal and economic shocks that countries are facing as a result of the pandemic, the number of 'CCC'/'CC' category sovereigns remains higher than before the pandemic, with eight issuers at the beginning of 2022. This pool of issuers in the highest-risk rating category suggests that defaults could remain elevated in coming years.


Following 2020's record seven foreign currency defaults, the sole foreign currency default last year was Belize, which defaulted for the fifth time. Belize entered 2021 already at the low end of the credit spectrum, with a rating of 'CCC+', and its default stemmed from its economic and fiscal position, which was severely weakened by the pandemic.

The distribution of sovereign ratings has been slowly drifting lower over the past 20 years as more emerging and frontier market sovereigns have sought to raise funding through international capital markets.

As we've found across our default and transition studies, those issuers rated in the lowest rating levels exhibit the highest default risk. In addition to Belize's foreign currency default, there was one default among local currency ratings in 2021--Suriname, which was rated even lower ('CC') at the start of 2021.

Chart 1


Chart 2


Sovereign Credit Began Stabilizing In 2021

While the economic recovery lifted credit quality broadly, credit quality in the developed market fared better than in emerging and frontier markets, many of which had less fiscal flexibility, less supportive financing conditions, and delayed access to COVID-19 vaccines. Furthermore, the pandemic has exacerbated social unrest and rising inflation, which continue to compound governments' challenges.

Chart 3


Downgrades and defaults during the year were entirely among emerging and frontier market countries, particularly from Latin America, the Middle East, and Africa. Many of the downgrades were of countries that rely heavily on international tourism as variants of COVID-19 slowed the recovery of international travel. More of the upgrades were of countries in the developed market.

Within emerging markets, Central Europe and the Commonwealth of Independent States showed relatively higher stability in 2021, with no upgrades and a single downgrade (Montenegro). However, the relatively benign credit conditions in the region came to an abrupt end with the Russian invasion of Ukraine in February 2022. This report covers the period through Dec. 31, 2021. For the latest updates on rating actions and research related to the conflict in Ukraine, please see "Russia-Ukraine Military Conflict: Key Takeaways From Our Articles," April 19, 2022.

Ratings Continue To Provide An Effective Measure Of Credit Quality

As in prior years, defaults were concentrated among the lowest-rated sovereigns, and sovereign rating performance continued to show that lower-rated entities exhibit higher rates of default.

One metric of ratings performance, the Gini ratio, measures the rank-ordering power of ratings over a given time horizon. With only sovereigns rated 'CCC+' or lower defaulting in 2021, sovereign ratings performance exceeded its long-term average and one-year weighted average Gini ratio. For 2021, the one-year Gini ratio was 94.9% for foreign-currency ratings, up from 91.4% in 2020 and above the one-year average of 89.5%.

Chart 4


This report does not constitute a rating action.

Ratings Performance Analytics:Nick W Kraemer, FRM, New York + 1 (212) 438 1698;
Evan M Gunter, New York + 1 (212) 438 6412;
Vincent R Conti, Singapore + 65 6216 1188;
Research Contributor:Tanya Dias, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at