Spain has stopped working officially with the three main credit rating agencies in the world: Standard & Poor's, Moody's and Fitch.
These three agencies are private companies dedicated to the study and evaluation of countries in order to make a judgment (give a rating) that can serve savers to make decisions regarding the solvency of their investments in public (sovereign) debt.Their ratings, therefore, allow the investor to have more information and thus mitigate the risk involved in investing in public debt. The agencies also report on the solvency of other borrowers from the Autonomous Communities, municipalities and companies. They provide, in short, easy-to-use relative risk measures.
The President of the Government of Spain Mariano Rajoy Brey has decided not to renew the contract with Standard & Poor's, as he had done in the last two years with Fitch and Moody's. In this way, the State will stop paying these firms to their assessment of the solvency of the country, even though on their own initiative, will continue issuing their note of Spanish sovereign debt.
From 1996 until 2007, Spain had a large economy expansion with a high level of investment. As national savings were insufficient, it needed to finance its investments by borrowing from abroad. In another words, the strong economic growth had to be financed through foreign savings, since domestic savings rates were insufficient to make the investment that were made.
In fact, Fitch, which the Ministry of Economy did not renew its contract last year, raised the rating of Spain to outstanding ("A") last Friday and will revise it for the second and last time on July 13 of 2018. The Moody's, which will review the rating of Spain on April 13 and October 5, was canceled on 2016. Standard & Poor's on the other hand, will do so, on March 23 and September 21 but in a timely manner "unsolicited" by the Spanish Government.
These ratings made by Standard & Poor's, Fitch and Moody's increase the efficiency of the market by reducing costs for both: the borrow and the borrower. In turn, this increases the total availability of risk capital, which leads a stronger growth. This also opens capital markets to categories of loan seekers who could not access this market in any other way, such us small governments, hospitals or universities.
"We will continue to evaluate Spain on an unsolicited basis because we believe that we have access to sufficient public information of reliable quality of support our analysis and continuous monitoring, and because we believe there is a significant interest in the market due to this unsolicited rating", explained the agency Standard & Poor's when announcing the non-renewal of the contract.
This is a measure that, according to sources from the Ministry of Economy, countries take when they consider that given the climate of normality and confidence of investors it is not necessary to work with all the rating agencies. These contracts are reviewed every year. Spain will maintain the current one with the Dominion Bond Rating Service agency (DBRS), although it will work with all of them to evaluate specific issues of sovereign debt and individualized bonds.