What is a sovereign credit rating?

A credit rating specifically given to a country or other sovereign entity.

A country's rating can significantly influence its ability to borrow money, since it's applied to any bonds issued by its government. A credit rating agency will assess a country's economy and provide it with an appropriate score.

Where have you heard about sovereign credit ratings?

You may have heard about them in the media during 2016, when the UK's credit rating was assessed to be AA1 negative by Fitch and AA negative by S&P. They play a vital role in global bond markets, showing investors how much risk a particular country is likely to pose. Those with high ratings, such as AAA, are generally deemed safer investments.

What you need to know about sovereign credit ratings.

Standard and Poor's, Moody's and Fitch are the three main agencies which provide credit ratings to sovereign states. These ratings can stretch from AAA at the very top end all the way down to D.

A credit rating shows that a country is willing to be transparent about its finances, by allowing an external agency to objectively review its economy.

Away from bonds, a good sovereign credit rating can help a country to secure foreign direct investment. Once again, those with stronger ratings are more likely to prove attractive to international investors.