Are working remittances relevant for credit rating agencies?

This paper studies the impact of workers’ remittances on sovereign ratings in 55 developing countries over the period 1993–2006. First, it looks at the determinants of sovereign ratings, including remittance flows. Second, it builds an empirical model for remittance-dependent countries to capture the effect of remittances, through a reduction of debt vulnerability and volatility of external flows, on Fitch, Moody's and S&P ratings. Third, it assigns ratings to unrated Latin American and Caribbean countries for which remittance flows are high. Our results suggest that there is no single model to rate countries and the impact of remittances on ratings is enhanced for small, low and middle income economies.