Index measuring the change in public debt, weighted by a country’s credit rating and debt level in relation to its GDP
This indicator is a category-based min-max normalization of the debt change. The debt change is the difference between the 2017 and 2018 of the debt-to-GDP ratio expected values. To transform the debt change value into a 0 to 100 score, each country was assigned to a specific category that determined the value boundaries. Categories are based on three criteria: general credit rating, government debt-to-GDP level for the year 2017, and country classification (1 if country is considered advanced, 0 otherwise, according to IMF’s classification). The general credit rating for each country is computed as the average of Fitch, Standard and Poor’s (S&P) and Moody’s credit ratings. Based on these criteria, 12 cases were identified: (1) if a country’s average rating is rated as “investment grade 1” and its debt-to-GDP level is less than 60%, its debt change is normalized 100;(2) if a country’s average rating is rated as “investment grade 1” and its debt-to-GDP level is less than 110%, its debt change is normalized to a score between 90 and 100; (3) if a country’s average rating is graded as “investment grade 1” and its debt-to-GDP level is greater than 110%, its debt change is normalized to a score between 80 and 90; (4) if the average credit rating is rated as “investment grade 2” and the debt level is lower than 110%, its debt change is normalized to a score between 70 and 80; (5) if the average credit rating is “investment grade 2” and the debt level is greater than 110%, its debt change is normalized to a score between 60 and 70; (6) if the average credit rating is “speculative”, the debt level is less than 110% and the country classification is “advanced”, its debt change is normalized to a score between 50 and 60; (7) if the average credit rating is “speculative”, the debt level is greater than 110% and the country classification is “advanced”, its debt change is normalized to a score between 40 and 50; (8) if the average credit rating is “speculative”, the debt level is less than 60% and the country classification is “developing”, its debt change is normalized to a score between 40 and 50; (9) if the average credit rating is “speculative”, the debt level is greater than 60% and the country classification is “developing”, its debt change is normalized to a score between 30 and 40; (10) if the average credit rating is “default”, the debt change is normalized to a score between 0 and 30; (11) if a country does not receive a credit rating from any rating agency and its debt level is below 60%, its debt change is normalized to a score between 40 and 50; and (12) if a country does not receive a credit rating from a rating agency and its debt is above 60% of GDP, its debt change is normalized to a score between 30 and 40. To determine the final value of the debt dynamics indicator within the assigned boundaries, we’ve calculated the normalized debt change, which ranges from a minimum observed value of 0 and the maximum observed value of 20. As part of the normalization process, we assigned a score equivalent to the minimum value of each bracket if the debt change was 20% or higher; assigned the maximum value of the bracket if the debt change was 0% or lower; and assigned a score between the two values if the debt change was between 0% and 20%.
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