Analyzing the Factors Influencing Sovereign Credit Ratings in East Africa

This study utilizes an ordered probit model to analyze the determinants of sovereign credit ratings for East African countries from 2010 to 2022, based on ratings from major agencies. The findings reveal that the impact of various macroeconomic factors—such as GDP growth, GDP per capita, external debt, current account balance, inflation, and unemployment—differs according to the income level of each country. In high-income countries, GDP and the rule of law are the most significant determinants, whereas in lower-middle-income countries, GDP and external debt are the key factors. Middle-income countries exhibit the highest number of significant variables, including annual GDP growth, inflation, and current account balance, reflecting the intricate interaction of economic and institutional factors in determining creditworthiness for this group. Notably, the study reveals a counterintuitive finding where higher levels of corruption are linked to factors that indirectly enhance creditworthiness in middle-income countries, suggesting that the negative effects of corruption may be outweighed by stronger economic factors. Across all income groups, GDP or GDP growth consistently emerges as a critical determinant, emphasizing the pivotal role of economic size and stability in shaping sovereign credit ratings. These insights provide East African countries with guidance on improving their credit ratings by focusing on the key drivers relevant to their specific income levels.