What Credit Rating Agencies Actually Do

For countries, the Credit Rating Agencies do much more than just provide a rating…

Ask most investors what a sovereign credit rating measures and the answer arrives quickly: the probability that a government repays its debt. This description captures something true, though it leaves out most of the work. It treats credit rating agencies as instruments, dials that convert fiscal data into a letter grade. The reality, visible in almost any week of sovereign debt reporting, is considerably more interesting. Credit rating agencies assess financial conditions, evaluate institutions, interpret policy, anticipate events that have not yet occurred, and compress all of this into a judgement that a bond trader can act on in seconds. The letter grade is only the visible surface. The evaluative work behind it is the real product.

Reuters’ coverage of Gabon’s revised 2026 budget, published on 21 July, offers a compact illustration. On the surface the story is straightforward: a government has widened its projected deficit, cut revenue forecasts by 22 percent, and authorised a Eurobond issuance of up to 1.5 billion US dollars while a new International Monetary Fund programme remains unresolved (Goko, 2026). Underneath that surface, the episode reveals at least four distinct evaluative functions that sovereign credit rating agencies routinely perform.

Four evaluative functions

The first is financial evaluator. Fitch and other agencies had already flagged that Gabon’s deficit would complicate access to Fund financing, well before the revised budget confirmed the concern (Goko, 2026). Here the agencies are doing the work closest to conventional expectation, testing the government’s own numbers against what they consider a credible path to sustainability.

The second is evaluator of financing strategy. A government that turns to Eurobond markets while an IMF programme is still under negotiation is sending a signal about sequencing and intent, and the agencies read that signal as carefully as they read the deficit itself. They are asking whether Gabon’s chosen route to funding strengthens or weakens its future credit profile, not merely whether the government can service what it already owes. Kevin Daly of Aberdeen Investments captured the practical stakes of this question when he suggested that any Fund programme would likely be delayed into 2027 as a result (Goko, 2026).

The third is institutional evaluator. Gabon is reviewing public borrowing records from 2016 to 2024 for undisclosed liabilities and unexecuted projects, and Moody’s has already indicated that the exercise could surface additional unreported debt (Goko, 2026). Here the agency is forming a view on the reliability of the government’s own account of its obligations, a judgement about institutional transparency rather than arithmetic.

The fourth is prospective evaluator. Agencies extend their evaluation beyond present conditions, projecting how today’s decisions are likely to reshape tomorrow’s credit profile, and this forward orientation is what distinguishes their work from simple bookkeeping. Nicholas Sauer of Robeco arrived at a strikingly similar forward-looking judgement when he framed the shift away from multilateral engagement toward market funding as a concern for the entire CEMAC region, not for Gabon alone (Goko, 2026). Sophisticated investors and rating agencies converge here because both are performing the same essential task, projecting how a present choice will alter a future evaluation.

Taken together, these functions reveal something important. Credit rating agencies evaluate far more than sovereign creditworthiness itself; they evaluate many of the conditions from which that creditworthiness ultimately emerges.

Reinforcement, not isolation

What makes the Gabon case analytically useful is that none of these four functions operates in a sealed room. Agency assessments, IMF negotiations, investor expectations, and market pricing begin to reinforce one another. Each produces information that other actors must interpret, even where none is formally subordinate to another. Investor commentary already treats an unresolved audit and a delayed Fund programme as connected facts, and the market responded accordingly: Gabon’s bonds due in 2031 and 2029 both fell on the news (Goko, 2026). A future audit finding on undisclosed debt would, in turn, be read against everything the agencies have already signalled about transparency. A single fiscal document can move bond prices, shape investor expectations about a multilateral negotiation, and prefigure how an ongoing audit will eventually be received.

As Timothy Sinclair argued two decades ago, rating agencies are not merely technical information providers. They help construct the environment within which governments make policy decisions, and their impact is political first in the processes they use and second in the distributive consequences that follow (Sinclair, 2005). Sinclair’s point is that judgement of this kind is built into the enterprise from the start, rather than something raters resort to only when the data runs short.

Davis, Kingsbury and Merry’s work on indicators as a technology of global governance supplies the wider frame for why four such functions can coexist in a single rating. Indicators, in their formulation, simplify complex social phenomena into rank-ordered data that different actors can use without needing to interrogate the underlying complexity themselves, and in doing so those who produce indicators become governors in their own right, whether or not they are formally recognised as such (Davis, Kingsbury and Merry, 2012). A sovereign credit rating is perhaps one of the clearest examples of this process. It describes Gabon’s fiscal position while simultaneously becoming one of the reference points against which the IMF, bondholders, and the Gabonese government itself calibrate their next moves.

What this leaves the reader with

Recognising this changes how we should think about sovereign ratings. Their significance lies not simply in the grades they publish, but in the continuous evaluative process through which those grades are produced and interpreted. The influence of sovereign credit rating agencies therefore lies less in the letter grades they publish than in the continuous evaluative work that produces them.

The letter grade is what markets see. The evaluative work that produces it is where the real influence lies.

References

Davis, K.E., Kingsbury, B. and Merry, S.E. (2012) 'Indicators as a Technology of Global Governance', Law & Society Review, 46(1), pp. 71–104.

Goko, C. (2026) 'Gabon's revised budget puts new IMF deal at risk, investors say', Reuters, 21 July.

Sinclair, T.J. (2005) The New Masters of Capital: American Bond Rating Agencies and the Politics of Creditworthiness. Ithaca, NY: Cornell University Press.