With all the fear and speculation surrounding the current wave of credit rating downgrades, this chart gives a useful indication of the global situation (liable to change at any moment mind!).
A credit rating gives an indication of how risky an investment a state is percieved to be. Although ostensibly only a ‘guide’ provided by the rating agency, a lower rating almost always leads to higher borrowing costs for a govenrment. This means big trouble when states ‘refinance’ (basically renewing old debt), as they are suddenly hit with a much higher interest bill on their debts.
Here’s a run down of what Standard & Poor’s (one of the three main rating agencies, along which Moody’s and Fitch) ratings indicate:
AAA: The best-quality borrowers, reliable and stable
AA: Quality borrowers, a bit higher risk than AAA
A: Economic situation can affect finance
BBB: Medium-class borrowers, which are satisfactory at the moment
BB: More prone to changes in the economy
B: Financial situation varies noticeably
CCC: Vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.
CC: Highly vulnerable.
C: Even more highly vulnerable.
D: Defaulting on commitments.
Ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.