Remittance flows are an important source of financing for developing countries. In
addition to the microeconomic impact at the household level, remittances have grown into an
important pillar of macroeconomic stability, reducing volatility of external flows, lessening the
probability of current account reversals, thus strengthening creditworthiness. By studying 83
developing countries covering the period 1993-2006, we analyse the impact of workers’
remittances on sovereign rating assessment. First, we look at the traditional determinants of
sovereign ratings and assess to what extent remittances are taken into account. Second, we build
a model for high-remittance receptors to capture the potential effect that remittances may have
on Fitch, Moody’s and S&P ratings. Third, we assign ratings to unrated Latin American countries
for which remittance flows are generally high. Our conclusion supports the view that credit
rating agencies (CRAs) do take remittance flows into account to rate sovereigns. Nevertheless,
this variable turns out to be significant for a limited set of countries, small in size and classified in
the low and middle income categories. We derive policy implications and recommendations
from our findings for boosting rating coverage.
