….downgrades have a devastating effect on economies that are already strained. The decision to downgrade during a crisis like the coronavirus pandemic must be challenged.A number of rating agencies have downgraded emerging market economies during the Covid-19 pandemic. Their actions have raised the question: why do so during a crisis?This is not the first time ratings agencies have adopted a procyclical approach – that is, one in which bad news is simply piled on bad news.During the 2008 global financial crisis, ratings agencies were accused of aggressively downgrading countries whose economies were already strained. Reports by the European and US Commissions found evidence that their decisions worsened the financial crisis.Nobel laureate Joseph Stiglitz has also accused rating agencies of aggressively downgrading countries during the 1997 East Asian financial crisis. The downgrades were more than what would be justified by the countries’ economic fundamentals. This unduly added to the cost of borrowing and caused the supply […]
WHY DOWNGRADING COUNTRIES IN A TIME OF CRISIS IS AN EXCEPTIONALLY BAD IDEA
