CRIS Index

The standard sovereign credit rating is a statement of how safe and rewarding a nation’s credit is, without any account of where other nation’s stand on this dimension. However, for investors it is often critical to know how a nation does in comparative terms. Accordingly, a new index has been developed that is called the ‘comparative rating index for sovereigns’ (CRIS). The precise mathematical formula for the CRIS, and hence the paper is confidential. But its broad idea is easy to explain.

It should first be clarified that its computation is based on nothing apart from standard ratings data and data on the GDPs of different nations in order to determine the importance or weights of different nations. For a variety of reasons, the researchers settled on Moody’s foreign currency credit ratings and the International Monetary Fund’s (IMF) GDP statistics, with no purchasing power parity (PPP) correction. Each nation’s CRIS is constructed using these two sets of numbers. Among the important mathematical properties of the CRIS are the following.

If nation’s sovereign credit rating is constant and all other nations’ Moody’s ratings rise, then nation i’s CRIS will decline.

The weighted average of the CRIS for all nations is constant. Hence, one nation’s improvement in CRIS is invariably accompanied by worsening of the CRIS forsome other nation or nations.

The CRIS has been constructed so as to register diminishing marginal returns to improvements in the absolute ratings.(Source – Economic Survey)