Sovereigns Displayed Credit Rating Resilience In 2024

Sovereign foreign currency (FC) defaults decreased to one in 2024 from three the prior year, while local currency (LC) defaults dropped to two from six. Economic resilience in the developed world (particularly in the U.S.), the reopening of China, strong commodities prices, and fiscal consolidation in many emerging and smaller developed economies contributed to the drop.

The defaults--which were all selective defaults (see chart 1 and appendix 3)--were emerging and frontier markets sovereigns. High funding needs and upcoming maturities in a context of macroeconomic vulnerabilities and scarce funding options were common threads, though idiosyncratic reasons are at the root of the two distressed exchanges and one missed payment in 2024.

For the second consecutive year, LC defaults outnumbered FC defaults.

Sovereign upgrades were up to 22, from 15 in 2023. Speculative-grade sovereigns accounted for 73% of the upgrades following fiscal and external consolidation, spurred in many cases by the implementation of structural reforms and the participation in IMF programs.

Downgrades (including defaults) among sovereigns rated by S&P Global Ratings remained stable at 10. Six of the downgrades were investment-grade sovereigns, as the impact of the Russia-Ukraine and Israel-Hamas conflicts weighed on defense expenditure amid weak growth prospects for some countries (Latvia, Lithuania, and Israel). Some are also facing elevated leverage and fiscal deterioration amid political uncertainty.

79% of the rating actions occurred in emerging and frontier market countries. This is broadly in line with the composition of our rated entities: Emerging and frontier markets are 73% of the sovereigns covered in this study. 59% of emerging and frontier markets are rated speculative-grade, meaning they're more prone to rating changes.

However, geopolitical risks are at their highest in decades. The credit quality of sovereigns remains, on average, below pre-pandemic levels and about two notches below the levels before the global financial crisis (see "Global Sovereign Rating Trends 2025: Geopolitical Risk Is The Biggest Threat To Credit Quality," Dec. 18, 2024).

While deficits have improved from the pandemic-era peaks, stocks of debt remain higher than before the pandemic, and we do not expect this to change over the next few years. Lingering inflationary pressures and uncertainty about global trade policy may imply borrowing costs will not recede consistently. Indeed, for 2025, we expect a 3% year-over-year surge in sovereign commercial borrowing.

A sovereign has flexibility in servicing its local currency debt based on the unique powers it enjoys within its own borders, particularly in its control of domestic financial and monetary systems. As a result, S&P Global Ratings assigns both FC and LC ratings (including public and confidential) to sovereigns. This study focuses on FC ratings unless otherwise noted.

2024 Defaults In Profile

Ukraine launched the formal restructuring of some of its Eurobonds through an exchange offer, with the government also deciding to suspend payments on the affected 2026 Eurobonds before the restructuring. Ukraine's debt restructuring came amid significant economic, external, and fiscal pressures emanating from the Russian military aggression. As such, S&P Global Ratings lowered its FC ratings to 'SD' (selective default) in August 2024 (see "Ukraine FC Rating Lowered To 'SD' On Missed Coupon Payment Amid Debt Restructuring; 'CCC+/C' LC Ratings Affirmed").

On March 13, 2024, S&P Global Ratings lowered its LC sovereign issuer credit ratings on Argentina to 'SD/SD' from 'CCC-/C'. Argentina announced a peso-debt exchange offer for $55.3 billion equivalent of 15 debt instruments that mature in 2024 in return for new inflation-linked peso-denominated debt, pushing maturities beyond this year into 2025-2028.

In line with the peso-debt exchanges conducted in January, March, and June 2023, we considered this transaction distressed, based on the likelihood of conventional defaults--absent participation of creditors--given the sovereign's acute macroeconomic vulnerabilities and limited ability to extend maturity and place paper in the local market without relying on exchanges (see "Argentina Local Currency Rating Lowered To 'SD' On Another Distressed Exchange; 'CCC-' Foreign Currency Rating Affirmed").

S&P Global Ratings lowered its LC rating on Congo-Brazzaville to 'SD' from 'CC' after it announced implementation of an exchange on about half of its regional market CFA franc-denominated debt. We classified the debt restructuring as a distressed exchange, based on the likelihood of conventional default absent the participation of creditors. This comes as a consequence of Congo-Brazzaville's limited ability to refinance itself on the regional market and tight liquidity conditions (see "Congo-Brazzaville Local Currency Rating Lowered To 'SD/SD' On Distressed Exchange; 'CCC+' Foreign Currency Affirmed").

A Marked Increase In Speculative-Grade Sovereign Upgrades

Sovereign credit quality improved in 2024 as upgrades outnumbered downgrades by more than 2x (see chart 5). In particular, speculative-grade upgrades totaled 16, their highest count since the beginning of the studied period (1995).

Investment-grade downgrades rose to six (France, Israel, Latvia, Panama, Lithuania, and Peru) from two in 2023 and overtook speculative-grade downgrades for the first time since 2012.

It was an active year in terms of rating actions. Roughly 75% of sovereign ratings were unchanged in 2024, the lowest since 2018.

Table 1

Indeed, the upgrade rate was 16.2% (the highest since 2007), up from 11.1% in 2023 and markedly higher than the 10.8% weighted average since 1975. The downgrade rate was on the rise as well, to 6.6% from 5.2% in 2023, but lower than the weighted average of 9.5%. See appendix 2 for more information.

As part of our analysis of ratings performance, we measure rating transitions. To measure rating transitions over a one-year horizon, we use a static pool approach to compare the issuer credit ratings as of the beginning of the year with those at year-end. This approach measures the net rating migration for an issuer during the year, rather than the number of times a rating changed.

For example, a rating that we lowered twice in 2024 would be counted as one issuer downgrade, rather than two individual downgrades.

Large rating transitions are not common among sovereigns. Most downgrades are typically one notch, or occasionally two. Sovereign upgrades within a calendar year seldom exceed one notch.

In 2024, for downgrades (excluding defaults), the average rating change amounted to 1.11 notches, down from 2023's 1.29 and the lowest since 2007. Upgrades were, on average, 1.09 notches in 2024, broadly in line with 2023 (see chart 6).

Since 1975, 78.5% of sovereign rating actions within a single year have been rating movements of one notch (see chart 7), and the majority were upgrades (58.3%). However, when considering rating actions of two or more notches, downgrades outnumber upgrades by four. These findings show that adverse credit shocks, such as the Southeast Asian crisis of 1997-1998, tend to materialize in a quicker and less predictable way than uplifts for sovereign credit ratings.

Many of the more pronounced multinotch downgrades include sovereigns that defaulted from an already low rating category. In 2024, we recorded a four-notch downgrade for Ukraine, to 'SD' from 'CCC', and a two-notch downgrade for Israel. Two-notch upgrades were recorded for Turkiye and Cyprus.

Ginis And Ratings Performance

All of S&P Global Ratings Credit Research & Insights' default studies have found a clear correlation between ratings and defaults: The higher the rating, the lower the observed frequency of default, and vice versa.

To measure ratings performance, we use the Gini ratio, which is a measure of the rank-ordering power of ratings over a given time horizon, from one through seven years (see charts 8-9). The Gini ratio shows the ratio of actual rank-ordering performance to a theoretically perfect rank ordering. A Gini coefficient ranges from 0 to 1, with higher values indicating a stronger relationship between lower rating categories and higher default rates (for details on the Gini methodology, see appendix 1).

The one-year Gini ratio for FC ratings was 94.8% in 2024, above the weighted average value of 90.2% and at its highest level since 2018.

LC ratings displayed weaker performance in 2024, with a one-year Gini ratio of 82%, lower than 90.4% in 2023 and below the weighted average of 87.7% (see table 2). The transition of the Congo-Brazzaville LC rating to 'SD' from 'B-' contributed to the decrease.

After the global financial crisis, sovereigns have, for the most part, shown very strong rating performance. The Gini ratio dipped below 90% during only three of the years for FC and four of the years for LC ratings. Since sovereigns have a smaller number of rated entities than other sectors, credit events such as the global financial crisis in 2008, the European sovereign debt crisis in 2010-2012, and the Russia-Ukraine conflict that originated in 2022 had outsize effects on rating performance, especially over periods longer than one year.

Table 2

Seven Sovereigns Rated 'CCC+' And Lower Point To Looming Default Risk

The number of rated sovereigns has risen through the years as governments have become more prone to raising external financing through international bond markets. We've assigned FC ratings to 164 sovereigns since 1975.

Much of the expansion in the number of rated sovereigns occurred between 1988 and 2012, when the tally grew by 105. Given the relatively small and static number of nations in the world, another such increase is unlikely. For that reason, the distribution of sovereign ratings will change almost exclusively with the movement of existing ratings.

As the number of rated sovereigns has climbed, so too has the share of speculative-grade ratings. Specifically, this has occurred since the late 1980s as countries with smaller and less diversified economies have sought credit ratings. The number of speculative-grade sovereigns peaked in 2016, at 65. By the end of 2024, 58 sovereign FC ratings (or 42%) were speculative-grade, down slightly from 2023 (see chart 10).

While the number of speculative-grade ratings overall decreased in the last few years, the number of sovereigns rated 'CCC' or lower increased to seven in 2024 from two in 2012. The total in 2024 is one lower than 2023. This is certainly at the core of the periodicity of sovereign defaults: Rated sovereigns have recorded at least one default annually for 13 consecutive years.

This pool of sovereigns rated in the lowest rating category suggests defaults could remain elevated in the coming years. Indeed, as of December 2024, of the seven 'CCC' and lower rated sovereigns, only four have been in the 'CCC'/'CC' pool for more than two years. And most of the defaults have come from issuers rated in the 'CCC'/'CC' category. All 'CCC' and lower rated sovereigns are in emerging and frontier markets.

As of year-end 2024, 17 sovereigns had different LC and FC sovereign credit ratings. For example, Colombia has a long-term LC rating of 'BBB-' and a long-term FC rating of 'BB+' (see table 3). The count was 16 as of last year, with the addition of Mozambique. S&P Global Ratings lowered its LC rating on Mozambique to 'CCC' in October 2024 on domestic liquidity strain. The FC rating remained 'CCC+'.

For nonaligned sovereign ratings, the LC ratings tend to be higher than the FC ones. We determine a sovereign LC rating by applying usually no more than one notch of uplift over the FC rating (see "Sovereign Rating Methodology"). Sovereign LC ratings can be higher than sovereign FC ratings because local currency creditworthiness may be supported by the unique powers that sovereigns possess within their own borders, including issuance of the local currency and regulatory control of the domestic financial system.

Table 3

The distribution of LC ratings is broadly in line with that of FC ratings (see chart 11). However, the number of 'CCC+' and lower rated LC sovereigns remained at 13 in 2024, almost double that of the FC rating distribution. Argentina, Pakistan, Congo-Brazzaville, Bolivia, Suriname, and Burkina Faso have LC ratings of 'CCC+' and lower. Ethiopia, Ghana, Lebanon, Sri Lanka, Ukraine, and Zambia also have LC ratings of 'CCC+' and lower, while the FC ratings are 'SD' as of year-end 2024.

Sovereign Foreign Currency Rating Transition Rates

An analysis of transition rates for sovereigns shows that higher ratings are inversely related to frequency of default. Furthermore, investment-grade-rated sovereigns tend to exhibit greater ratings stability (as measured by the frequency of rating transitions) than those rated speculative-grade.

From 1975-2024, on average 96.98% of sovereigns that were rated 'AAA' maintained that rating over a one-year horizon. Over a longer period, ratings tend to show higher rates of transition. For example, the stability rate for 'AAA' is 91.12% over three years, 85.32% over five years, 72.54% over 10 years, and 66.08% over 15 years (see tables 4-8).

Nevertheless, very few of the 'AAA' rated sovereigns that transitioned over a 15-year period had ratings fell below the 'AA' category. On average, 28.41% of sovereigns rated 'AAA' transitioned to the 'AA' category over a 15-year horizon. Over the same period, less than 1.5% of 'AAA' sovereigns migrated to speculative-grade, and none transitioned to 'SD'.

On the other hand, from 1975-2024, on average 86.94% of sovereigns rated 'BB' maintained their rating over a one-year horizon. But over 15 years, only 24.83% remained rated in the 'BB' category. Over that period, credit ratings improved in 40.82% of cases and worsened in 18.71%, and 14.29% of the sovereigns defaulted.

Table 4

Table 5

Table 6

Table 7

Table 8

Another gauge of ratings stability is the average time a sovereign spends at a particular rating. 'AAA' ratings are much more stable than any other rating category (see table 9). The 11 'AAA' sovereigns have averaged nearly 28.5 years at that rating level. The average number of years that each issuer has been at its current rating level tends to be higher for issuers in the higher rating categories.

Two exceptions to this relative measure of stability are: Sovereigns in the 'A' category have spent less time at this rating than sovereigns in the 'BBB' categories, and 'BB' sovereigns have spent less time at this rating than 'B' category sovereigns have spent at 'B'. In part, this reflects recent additions to these categories, such as:

• Andorra upgraded to 'A-' in May 2024 after more than nine years in the 'BBB' category;
• Croatia upgraded to 'A-' in September 2024 after more than five years in the 'BBB' category;
• Cyprus upgraded to 'A-' in December 2024 after more than six years in the 'BBB' category;
• Portugal upgraded to 'A-' in March 2024 after almost seven in the 'BBB' category;
• Turkiye upgraded to 'BB-' in November 2024 more than six years in the 'B' category;
• Albania upgraded to 'BB-' in March 2024 after being part of the 'B' category since its first rating in 2010;
• Jordan upgraded to 'BB-' in September 2024 after almost seven years spent at 'B+'; and
• Benin upgraded to 'BB-' in April 2024 after almost six years spent at 'B+'.

The average years spent in the 'CCC'/'C' category increased to 1.89 years in 2024 from 1.11 years in 2023--in part because of the decline in defaults.

Table 9

Sovereign Local Currency Rating Transition Rates

In 2024, the number of positive rating actions was higher than in 2023. Speculative-grade upgrades in 2024 were approximately 3x the number of investment-grade upgrades (see chart 12) and were almost 2x their 2023 level.

Downgrades totaled 11 while defaults declined to two from six, reducing the LC default rate to 1.4% from 2.9% (see table 10).

Table 10

The average number of notches of LC downgrades (excluding defaults) decreased for the second consecutive year to 1.11 in 2024 from 1.17 in 2023. The average notch change of LC upgrades in 2024 reduced to 1.09 from 1.14 (see chart 13).

Table 11

Table 12

Table 13

Historical Sovereign Default Rates

Over our rating history, 29 sovereigns with public FC or LC ratings have defaulted from 1999 through 2024, and half of these have defaulted multiple times. In 2024, Ukraine recorded its third FC default, after 2015 and 2022.

Included among the FC defaults of past years are some sovereign members of monetary unions such as Greece and Cyprus within the eurozone (see table 14). In S&P Global Ratings' sovereign rating criteria, defaults of sovereign members of a monetary union are counted as FC defaults because the individual country has no sovereign control over the common currency. In line with this reasoning, the LC ratings on eurozone sovereigns converged with the (often lower) FC ratings when they joined the union.

Table 14

Table 15

During 1975-2024, no sovereign that was rated 'AAA' at the beginning of a year defaulted within the ensuing 15 years. Moreover, the cumulative default rates were generally higher at lower rating levels (see table 16).

The 15-year cumulative default rate averaged 3.5% for sovereigns with investment-grade ratings and 30.3% for sovereigns with speculative-grade ratings. The same trends are generally true when calculating default rates disaggregated by rating category and confirm the non-linearity of the rating scale: The difference between the 15-year cumulative default rate of the 'A' category and the 'BBB' category is significantly smaller than the difference between the 'BB' and 'B' categories.

Lower rating categories generally exhibit higher default rates over each time span. But some exceptions occur, such as when the number of defaults is low or when the underlying population of issuers is very small--such as at the rating modifier level.

One exception is the cumulative default rates for sovereign LC ratings in the 'A' and 'BBB' categories over the eight- to 15-year horizon (see table 17). The 'A' category includes defaults of Greece, Cyprus, and Barbados, since these issuers had previously been rated in the 'A' category.

While the cumulative default rates for the 'A' and 'BBB' categories have declined in recent years, these defaults continue to have an outsize impact on the relatively small sample of 'A' issuers. (For more detail on the cumulative default rates at the rating modifier level, please see table 62).

Table 16

Generally, the cumulative default rates by rating category have been higher for FC sovereign credit ratings than for LC sovereign credit ratings (see tables 16 and 17). We consider that--other things being equal--the probability of default on a sovereign's local currency obligation could be lower than on a foreign currency obligation.

Furthermore, the LC sovereign default rates could also be understated because it is hard to detect forced rollovers of domestic bank debt or coerced exchanges of local law, local currency debt when domestic financial institutions hold the debt.

Table 17

Sovereigns that approach default usually experience multiple successive downgrades as the likelihood of default increases (see table 18).

Table 18

On average, for sovereigns that eventually default, there is a correlation between the initial rating and the time to default--the higher the rating, the longer the time to default (see tables 19-20). For example, for the entire pool of sovereign defaults (1975-2024), the average times to default for issuers that were originally rated in the 'AA' and 'BBB' categories were 19.4 years and 15.1 years, respectively, from the initial ratings, whereas issuers in the 'B' rating category had an average time to default of only 8.9 years.

Tables 19 and 20 display the medians, averages, and standard deviations for the time to default from the original rating for FC and LC ratings. Note that when an issuer emerges from a default (including selective default), we treat it as a new entity with a newly assigned initial rating.

Tables 21 and 22 present the average and median times to default from the date that each entity received each unique rating in its path to default, excluding the original rating. Generally speaking, the average time to default for each rating category is longer when based on the initial rating on a sovereign than it is based on post-original ratings (see tables 21-22).

Table 19

Table 20

Table 21

Table 22

Appendix 1: Gini Ratios

In addition to examining the absolute performance of ratings, we examine their relative performance. We utilize the Lorenz curve, a graphical representation of the proportionality of a distribution, as one measure of relative ratings performance, and we summarize this via the Gini coefficient.

The Lorenz curve is plotted with the x-axis showing the cumulative share of issuers, arranged by rating, while the y-axis represents the cumulative share of defaulters, also arranged by rating. For both axes of the Lorenz curve, the observations are ordered from the low end of the ratings scale ('CCC'/'CC') to the high end ('AAA').

As an example, if 'CCC'/'CC' rated entities made up 10% of the total population of issuers at the start of the time frame examined (x-axis) and 50% of the defaulters (y-axis), then the coordinate (10, 50) would be the first point on the curve.

If S&P Global Ratings' sovereign credit ratings only randomly approximated default risk, the Lorenz curve would fall along the diagonal. Its Gini coefficient--which is a summary statistic of the Lorenz curve--would thus be zero. If the ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated entities, the curve would capture all of the area above the diagonal on the graph (the ideal curve), and the Gini coefficient would be 1.

Lorenz curves for FC and LC sovereign credit ratings resemble the ideal Lorenz curves, though the small sample size results in less accurate readings than in larger sectors. A larger number of data points would register a smooth line that curves (see chart 15). Many of the other charts show lines that take sharp turns, resulting in angles rather than curves.

Sovereigns rated 'CCC+' and lower accounted for 2.2% of ratings and above 50% of defaults over a one-year horizon (see chart 14). Sovereigns rated 'B+' and lower accounted for 22.8% of sovereign ratings and yet around 93.8% of defaults. Because there are no defaults at any rating level higher than 'BBB-' over a one-year horizon, the relationship between speculative-grade ratings and defaults is strong. Fewer defaults come from the higher-rated cohorts of sovereigns.

Table 23

Over the one-, three-, five-, and 10-year horizons, weighted average Gini coefficients for FC sovereign credit ratings are higher than those of LC ratings. FC and LC Gini coefficients are based on two separate datasets. FC ratings present a larger sample, with ratings over a longer time horizon and more defaults. The rating history for LC ratings begins in 1993, so credit events such as the Asian financial crisis in 1997, the global financial crisis in 2008, and the eurozone sovereign debt crisis in 2010-2012 have a higher weighting within the shorter sample period of LC ratings (see charts 18-21).

Appendix 2: Regional Ratings Distribution And Rating Actions

Regional ratings distribution

For this report, we segment most of the sovereigns S&P Global Ratings has ratings on into five regions:

• Middle East and Africa (including North Africa and sub-Saharan Africa),
• Latin America (including the Caribbean),
• Asia-Pacific,
• Eurozone, and
• Central and Eastern Europe and CIS (Commonwealth of Independent States)--the former Soviet republics.

In this study, we also include a broad designation for emerging and frontier markets, consisting of 106 sovereigns (currently and formerly rated), which come from all of the above categories except the eurozone (see table 24).

Table 24

Most new sovereign ratings since 1998 have come from the Middle East, Africa, and Latin America, and these regions have added the most speculative-grade ratings over the past decade.

The number of sovereign ratings in Central and Eastern Europe and CIS has also risen substantially over the past 20 years, totaling 22 at the end of 2024.

The eurozone and Asia-Pacific displayed a higher concentration of investment-grade-rated issuers than other regions, namely 100% and 67%, respectively. These two regions have been relatively stable in terms of the number of rated sovereigns. For the eurozone, S&P Global Ratings has rated all 19 sovereigns specified in table 24 since at least 1997, while Asia-Pacific has had 20-23 since 2006.

Much of the growth in sovereign ratings has come from regions with higher concentrations of lower-rated issuers. This has weakened overall sovereign credit quality, even as the number of rated countries globally has increased.

Middle East and Africa

At the end of 2024, we rated 32 sovereigns in the Middle East and Africa, versus nine in 1998. Most of the issuers in the region were rated speculative-grade (22), with 14 of those in the 'B' category or lower (see chart 25).

Latin America

The number of Latin American sovereign credit ratings has increased steadily since 1992, and at least 50% of the rated issuers have been speculative grade in all but one year (2014). At the end of 2024, 29 Latin American sovereigns had FC sovereign credit ratings, and 17 of these were speculative-grade. Among the 12 investment-grade sovereigns, the 'BBB' category was the largest, with 10 (see chart 23).

Asia-Pacific

Asia-Pacific had 21 rated sovereigns at the end of 2024. The region displayed a broad mix of sovereigns with different credit quality. 67% of rated sovereigns were investment-grade, with two 'AAA' rated sovereigns: Australia and Singapore. Of the seven speculative-grade sovereigns in the region, five were in the 'B' rating category at the end of 2024 (see chart 24).

Central and Eastern Europe and CIS

At the end of 2024, Central and Eastern Europe and CIS had 22 rated sovereigns, of which 55% were investment-grade. 55% of rated sovereigns were in the 'BBB' and 'BB' rating categories (see chart 25).

Eurozone

The eurozone contains the fewest sovereign credit ratings, with 18, after the withdrawal of the rating on Estonia in 2024 (the count had been 19 since 1997). Moreover, 65% of eurozone sovereign credit ratings were in the 'AA' or 'A' categories (see chart 26).

Emerging and frontier markets

At the end of 2024, there were 93 rated emerging and frontier markets sovereigns, of which 59% were speculative-grade. The number of rated emerging market sovereigns has more than doubled since 1998, and the majority of ratings have been speculative-grade in each of those years.

The 'B' rating category is the largest within emerging and frontier markets, accounting for half of speculative-grade issuers. The number of emerging and frontier market sovereigns rated 'CCC+' and lower dropped to seven in 2024, from eight in 2023 (see chart 27).

Regional rating movement

Middle East and Africa.  Upgrades for Middle East and African sovereigns (seven) outpaced downgrades (three) in 2024, a historical exception considering that downgrades have been more dominant in the region since the global financial crisis (see chart 28).

Upgrades last year were:

• Cameroon to 'B-' from 'CCC+' as risks to government's liquidity position and payment discipline have eased;
• Cape Verde to 'B' from 'B-' on fiscal and external consolidation supported by robust growth since the COVID-19 era;
• Jordan to 'BB-' from 'B+' as successive fiscal and economic reform efforts since 2019 have widened the tax base and structurally improved the competitiveness and the business environment;
• Benin to 'BB-' from 'B+' on strong economic performance with diversification from public investment and structural reforms;
• Cote d'Ivoire to 'BB' from 'BB-' on strong support from the WEAMU (West African Economy and Monetary Union) membership and declining budgetary and external imbalances;
• Oman to 'BBB-' from 'BB+' due to the continued strengthening of public finances and ongoing deleveraging of many SOEs; and
• Ras Al Khaimah to 'A' from 'A-' on growth momentum triggered by tourism-related projects and the mining sector amid resilient fiscal performance.

S&P Global Ratings downgraded Israel twice in 2024, bringing the credit rating to 'A' from 'AA-', due to the adverse impact on the economy and public finances of the direct attack by Iran in mid-April 2024 and the worsening conflict with Hezbollah in Lebanon afterward. Kenya was downgraded to 'B-' from 'B' due to deteriorating medium-term fiscal and debt outlook following the government's decision to rescind 2024/2025 Finance Bill tax measures. S&P Global Ratings lowered its FC rating on Congo-Brazzaville to 'CCC+' from 'B-' due to general liquidity pressures.

Latin America.  In Latin America, upgrades outnumbered downgrades for the second year in a row, by four to two, after 10 years displaying the opposite trend (see chart 29).

Upgrades last year were:

• Argentina to 'CCC' from 'CCC-' reflecting the modestly better liquidity position due to the impact of the March 2024 debt exchange on debt servicing needs and positive economic developments;
• Barbados to 'B' from 'B-' due to progress in strengthening public sector finances, generating fiscal primary surpluses, and lowering the sovereign's debt burden;
• Nicaragua to 'B+' from 'B' on high remittance inflows and the government's macroeconomic prudency driving fiscal strengthening and lowering external vulnerabilities; and
• Paraguay to 'BB+' from 'BB' on evolving yet prudent macroeconomic policies, moderate fiscal deficits, and strong external position.

The downgrades in 2024 were:

• Panama to 'BBB-' from 'BBB' on sluggish revenue in 2024, payment arrears, and recognition of off-budget liabilities causing the sovereign debt and interest burden to rise; and
• Peru to 'BBB-' from 'BBB' due to political uncertainty constraining the government's capacity to implement more timely policies to boost the investment and economic growth outlook and build fiscal space.

Asia-Pacific.  Upgrades and downgrades in the Asia-Pacific region were tied at one each (see chart 30).

S&P Global Ratings downgraded Bangladesh to 'B+' from 'BB-' due to persistent pressure on its external metrics, marked by a continued decline in foreign exchange reserves. Mongolia was upgraded to 'B+' from 'B' due to robust growth and improvement in fiscal conditions stemming from exuberant mining sector activities (coal and copper).

Central and Eastern Europe and CIS.  Six upgrades (a five year-high) and three downgrades occurred in the region in 2024 (see chart 31).

Upgrades:

• Tajikistan to 'B' from 'B-' on resilient economic growth and narrower fiscal deficits;
• Montenegro to 'B+' from 'B' on stronger external and fiscal position, underpinned by the rebound in the tourism sector and structural reforms associated with EU accession process;
• Albania to 'BB-' from 'B+' on consolidation in public finances amid a strengthening external balance sheet, mainly from a booming tourism sector;
• Turkiye upgraded to 'B+' from 'B' and then to 'BB-' from 'B+' on efforts to reduce inflation through a combination of monetary and credit tightening amid rebalancing of external accounts, a reduction in foreign currency deposits, and a concomitant increase in the local central bank's stock of net foreign currency reserves;
• Serbia to 'BBB-' from 'BB+' due to strong domestic demand, infrastructure spending, and FDI prospects, as well as moderate public debt and a credible macroeconomic policy framework; and
• Croatia to 'A-' from 'BBB+' on reform implementation yielding economic and institutions improvements.

Excluding Ukraine's default, the remaining two downgrades were Latvia and Lithuania, to 'A' from 'A+' as the impact of the Russia-Ukraine war and wider regional geopolitical risks weigh on public finances (defense spending), economic growth (slower FDI), and competitiveness over the medium term.

Eurozone.  Eurozone sovereign rating actions recorded two upgrades and three downgrades last year. It was the first time a downgrade occurred in the region since 2015 (see chart 32). In addition to the rating actions on Latvia and Lithuania, 2024 registered:

• France downgraded to 'AA-' from 'AA' on deterioration of budgetary position, including significantly higher budget deficit and leverage compared with our previous expectations;
• Portugal upgraded to 'A-' from 'BBB+' on improvement in the country's financial position amid alleviating external liquidity risks; and
• Cyprus upgraded to 'BBB+' from 'BBB' and then to 'A-' from 'BBB+' due to progress addressing fiscal imbalances through resilient growth and nearby conflict zones bringing inflows of workers and capital into its open services dominated economy, combined with solid tourism levels.

Emerging and frontier markets.  Emerging and frontier markets accounted for 18 upgrades--a 14-year high and eight more than in 2023. Downgrades totaled seven--two less than in 2023 and a five-year low. All three 2024 reported defaults were in emerging and frontier markets (see chart 33).

Other sovereigns.  In 2024, Andorra was upgraded to 'A-' from 'BBB+' on improved external data, combined with current account surpluses and the financial sector's solid liquidity management derived from the association agreement with the EU.

Table 25

Appendix 3: Methodology And Definitions

This study is based on long-term sovereign credit ratings. The methodology tracks rating changes over time and includes revisions to 'SD' (selective default).

An 'SD' rating is more common for sovereign issuers than a 'D' (default) rating because defaulting sovereigns often continue to service some of their debt. An 'SD' rating is assigned when S&P Global Ratings believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner.

This study is based on issuer credit ratings as opposed to issue ratings. In other words, we look at the 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 until the date of withdrawal. We record defaults after the date of withdrawal if we obtain knowledge of those defaults.

There are 208 total rating records for sovereigns, including defaulted ratings.

S&P Global Ratings generally defines "default" as the failure to meet a principal or interest payment on the due date contained in the original terms of a debt issue (see "S&P Global Ratings Definitions," Dec. 2, 2024). However, questions can arise when applying this definition to sovereign obligations. We consider a sovereign to be in default under any of the following circumstances:

• For local currency and foreign currency bonds, notes, and bills issued by the central government and held outside the public sector of the country, a sovereign default occurs when the central government either fails to pay scheduled debt service on the due date or tenders an exchange offer of new debt with less favorable terms than the original issue.
• For private-sector bank loans incurred by the central government, a sovereign default occurs when the central government either fails to pay scheduled debt service on the due date or negotiates with the bank creditors a rescheduling of principal or interest at less favorable terms than in the original loan.

Emergence from default also can be a complicated analytical issue for sovereigns. Sovereigns often undertake debt restructurings through exchange offers that, we find, rarely close the books on the restructured debt. For a number of reasons, including difficulty in contacting all debtholders and holdouts seeking payment in accordance with original terms, we have observed that participation in sovereign distressed debt exchanges usually does not reach 100%.

In contrast, for debt restructurings in the U.S. and many other jurisdictions, all obligations are typically addressed in bankruptcy reorganization. An entity reorganizing outside of bankruptcy generally must continue payments on the holdouts' debt or face the prospect of an involuntary bankruptcy filing.

Less common among sovereign defaults is the repudiation of debt, which most often follows a revolutionary change of regime (as occurred in Russia in 1917, China in 1949, and Cuba in 1960). S&P Global Ratings takes no position on the propriety of government debt defaults, repudiations, and the like. S&P Global Ratings also does not take a position on the course of negotiations (or the absence thereof) between creditors and the government to work out debt that is repudiated or the parameters of any settlements between creditors and governments that could occur.

Instead, our issuer credit ratings are forward-looking opinions about an obligor's overall creditworthiness. We analyze historical defaults to form our own view on the extent that they could affect the likelihood of the sovereign defaulting in the future.

In general, S&P Global Ratings' sovereign credit ratings apply only to debt that the present government acknowledges as its own. If there is no resolution of a default through the courts or by the parties involved, S&P Global Ratings eventually withdraws the defaulted ratings based on the diminished prospects for resolution and the defaulted ratings' lack of relevance in the context of the market.

For example, S&P Global Ratings has no ratings on direct and guaranteed debt of the government of China issued prior to the founding of the People's Republic of China in 1949 because S&P Global Ratings first rated China in 1992, long after the new government repudiated pre-1949 debt. The default is included in our sovereign default survey, which covers defaults by rated and unrated issuers.

Our dataset includes sovereign credit ratings that were withdrawn following a default. In those cases, if the sovereign has been rated again, a new record would have been established, and the new rating would not be connected to the defaulted rating. This creates more than one record for defaulted sovereigns.

Static pool methodology

S&P Global Ratings Credit Research & Insights conducts its default studies on the basis of groupings called static pools. For the purposes of this study, we form static pools by grouping issuers by rating category at the beginning of each year, quarter, or month that the database covers. Each static pool is followed from that point forward. All issuers included in the study are assigned to one or more static pools. When an issuer defaults, we assign that default back to all of the static pools to which the issuer belonged.

We use the static pool methodology to avoid certain pitfalls in estimating default rates, such as by ensuring that default rates account for rating migration and can be calculated across multiperiod time horizons. Some methods for calculating default and rating transition rates might charge defaults against only the initial rating on the issuer, ignoring more recent rating changes that supply more current information.

Other methods may calculate default rates using only the most recent year's default and rating data. These methods may yield comparatively low default rates during periods of high rating activity because they ignore prior years' default activity.

The pools are static in the sense that their membership remains constant over time. Each static pool can be interpreted as a buy-and-hold portfolio. Because errors, if any, are corrected by every new update and because the criteria for inclusion or exclusion of sovereigns in the default study are subject to minor revisions as time goes by, it is not possible to compare static pools across different studies. Therefore, every update revises results to the same starting date of Dec. 31, 1975, to avoid continuity problems.

For instance, the 1976 static pool consists of all sovereigns rated as of 12:01 a.m. on Jan. 1, 1976. Adding those sovereigns first rated in 1976 to the surviving members of the 1976 static pool forms the 1977 static pool. All rating changes that took place are reflected in the newly formed 1977 static pool through the ratings on these entities as of 12:01 a.m. on Jan. 1, 1977. We used the same method to form static pools for 1978-2024.

Consider the following example for annual static pools: A sovereign is originally rated 'BB' in mid-1986 and downgraded to 'B' in 1988. This is followed by a default in 1993. We would include this hypothetical issuer in the 1987 and 1988 pools with the 'BB' rating, which was the rating at the beginning of those years. Likewise, it would be included in the 1989-1993 pools with the 'B' rating. Yet each of the seven pools in which this sovereign was included (1987-1993) would record its 1993 default at the appropriate time horizon.

Default rate calculations

Cumulative default rates average the experience of all static pools in a select period of time by calculating marginal weighted average default rates conditional on survival (survivors being non-defaulters) for each possible time horizon and accumulating marginal default rates. We calculate conditional-on-survival default rates by dividing the number of issuers in a static pool that default within a specific time horizon by the number of issuers that survived (did not default) up to that point in time. In the context of sovereign ratings, we treat the defaults of governments that selectively default as complete defaults.

Transition analysis

Transition rates compare issuer credit ratings at the beginning of a period with ratings at the end of the period. To compute one-year rating transition rates by rating category, we compared the rating on each entity at the end of a particular year with the rating at the beginning of the same year. An issuer that remained rated for more than one year was counted as many times as the number of years it was rated.

For instance, an issuer continually rated from the middle of 1984 to the middle of 1991 would appear in the seven consecutive one-year transition matrices from 1985 to 1991. If the rating on the issuer was withdrawn in the middle of 1991, it would be included in the column representing transitions to NR in the 1991 transition matrix. Similarly, if it defaulted in the middle of 1991, it would be included in the column representing transitions to 'D' in the 1991 one-year transition matrix.

All 1975 static pool members still rated on Jan. 1, 2024, had 49 one-year transitions, while sovereigns first rated on Jan. 1, 2024, had only one. Table 26 displays the summary of one-year transitions in the investment-grade and speculative-grade rating categories. Each one-year transition matrix displays all rating movements between letter categories from the beginning of the year through year-end. For each rating listed in the matrix's leftmost column, there are nine ratios listed in the rows, corresponding to the ratings from 'AAA' to 'SD', plus an entry for NR.

The only ratings considered in these calculations are those on entities at the beginning of each static pool and those at the end. All rating changes that occur in between are ignored. For example, if an entity was rated 'A' on Jan. 1, 2015, and was downgraded to 'BBB' in the middle of the year and then upgraded to 'A' later in the year (with no other subsequent rating changes), this entity would be included only in the percentage of issuers that began the year at 'A' that ended the year at 'A'. This also applies to transition matrices that span longer time horizons.

If an issuer defaults, we consider the rating as of Dec. 31 of that particular year to be 'D'. Similarly, if we withdraw our rating on an issuer, the methodology considers the issuer as of Dec. 31 of that year to be not rated.

Multiyear transitions

Multiyear transitions were also calculated for periods of two to 15 years. In this case, we compared the rating at the beginning of the multiyear period with the rating at the end. For example, three-year transition matrices were the result of comparing ratings at the beginning of the years 1975-2021 with the ratings at the end of the years 1978-2024. Otherwise, the methodology was identical to that used for single-year transitions.

We calculated average transition matrices on the basis of the multiyear matrices described. These average matrices are a true summary, the ratios of which represent the historical incidence of the ratings listed in the first column changing to the ones listed in the top row over the course of the multiyear period.

Transition matrices that present averages over multiple time horizons are also calculated as issuer-weighted averages.

For inclusion in the matrix, the issuer must be in at least one year. In the case of the three-year matrix, we must have rated the sovereign by Jan. 1, 2021; in the case of the 15-year matrix, we must have rated it by Jan. 1, 2009. Thus, there are progressively fewer observations the longer the transition period is, given the growth of sovereign ratings and, of course, given that there will be fewer static pools for each added set of 12 monthly cohorts in the matrix.

Annualized 12-month cohorts

In past studies, we have also included calculations of sovereigns' rating performance based on annualized 12-month cohorts. The static pools were created with monthly start dates, and rating transitions were measured over 12-month increments for each monthly static pool. Unless otherwise noted in this study, we've utilized an annual static pool methodology to calculate average transition rates, default rates, and Gini ratios. An annual static pool groups all rated entities as of Jan. 1 of a given year and compares those ratings with those on the entities as of Dec. 31 of the same year (for a one-year horizon).

In contrast, an annualized 12-month static pool approach would compare the ratings on entities as of the beginning of each month with the ratings on those entities 12 months later (for a one-year horizon). Transition and default rates calculated with this type of annualized monthly static pool approach can be found in tables in appendix 4 (see table 26-43 for transition rates and tables 52-53, 59, and 61-67).

Gini ratios based on this annualized monthly static pool approach diverge somewhat from the Ginis shown in table 3 (which utilizes the annual static pool approach). Annualized monthly static pools yield average Gini ratios for FC ratings of 89.29%, 80.38%, 76.97%, and 71.31% over one-, three-, five-, and 10-year horizons, respectively. For LC ratings, annualized monthly static pools result in average Gini ratios of 85.43%, 75.31%, 69.49%, and 59.65% over one-, three-, five-, and 10-year horizons, respectively.

Rating modifiers

Our calculations of upgrade and downgrade percentages, as well as the magnitude of rating changes, consider the specific rating as opposed to the rating category (for example, 'A-', 'A', and 'A+' rather than the 'A' rating category). However, for practical reasons, some transition tables may use rating categories. This means that actions such as a downgrade to 'AA-' from 'AA' or an upgrade to 'BBB+' from 'BBB-' are not considered transitions because the ratings remained within the same rating category.

Appendix 4: Additional Exhibits

Transition rates

Table 26

Table 27

Table 28

Table 29

Table 30

Table 31

Table 32

Table 33

Table 34

Table 35

Table 36

Table 37

Table 38

Table 39

Table 40

Table 41

Table 42

Table 43

Table 44  |  View Expanded Table

Table 45

Table 46

Table 47  |  View Expanded Table

Table 48  |  View Expanded Table

Table 49

Table 50

Table 51  |  View Expanded Table

Cumulative default rates

Table 52

Table 53

Table 54

Table 55

Table 56

Table 57

Table 58

Table 59

Table 60  |  View Expanded Table

Table 61

Table 62

Table 63

Table 64

Table 65

Table 66

Table 67

Related Criteria

• Sovereign Rating Methodology, Dec. 18, 2017

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