Credit rating index is an evaluation of the countries’ investing risk and predicting their ability to pay back the debts which is estimated by some authorized institutes like “The Organization for Economic Co-operation and Development” (OECD). According to the rating report by OECD, countries categorized into seven groups, the first ones represent the low-risk countries and the last ones show the high-risk countries. As the key factors that make countries able to pay back their debts and loans and as a result, achieving better credit rate can be pointed to: improvement in economic indicators, transparency in the monetary markets, political stability, risk management, reducing financing costs, rules on money laundering and joining The World Trade Organization (WTO).
An overview of ranking for developing countries regarding credit rating index in 2018 are shown in the table below (zero means lowest credit risk and 7 means the highest credit risk):
Iran is among the countries that improved their credit rate in recent years. After imposing international sanctions on Iran, its credit rate has worsened from 2006 to 2015. Eventually, improving international interactions, reducing tension in political relations, further ability to repay debts and comply with financial obligations and macroeconomic stability have led to better rating since 2016.
Iran’s credit rate from 2000 to 2018 are shown in the chart below:
The major outcomes resulted by higher place of Iran in the credit rating list are represented in the following:
- Reduction in political risks
- Decrease in financing costs and insurance rates of financing
- Facilitate in attracting foreign investment
- Improved trust of international financial system to Iran
- Increase in bargaining power of Iran in the international financial contracts
- Easier interaction with international banks and financial institutions
- Selling more bonds in order to fund large-scale development plans
- Attracting up-to-date technologies
The main challenge of Iran’s economy during the last decade was insufficient investment which is because of increasing share of current expenditures in the total budget, obstacles caused by international sanctions and recent economic downturn but during the last few years, increase in Iran’s products and exports (non-oil exports) through the improvement of Iran’s economic indicators and diplomatic relations have led to better credit rate.
To sum up, the basic factors influence the growth of countries’ economic risk are credit and bank crises which can amplify economic problems. On the other hand, the higher political and economic risks worsen credit rate. Among developing countries, Iran has achieved a good place in report by OECD in 2018 comparing to 2015 and it has reached to 5 from 7 which means improvement in credit risk. The good trend of Iran’s business environment according to the
article “Iran’s Business Environment in 2017; opportunities and challenges” besides its promotion trend of credit rate can show a bright prospect of Iran for international investors in the near future.