Webinar: Sovereign Ceilings and Credit Ratings in Emerging Markets

The sovereign ceiling has long functioned as a broad proxy for government interference risk in project and issuer-level credit assessment. Our recent paper examines whether that logic still holds for modern financing structures, and proposes a four-step framework that disaggregates sovereign risk into identifiable transmission channels and assesses each against the mitigants in place.

The argument is methodological. Sovereign ceilings should not function as an automatic constraint inferred from sovereign characteristics alone when the actual channels of interference and their mitigants can be assessed directly at the instrument and issuer level. The paper focuses on domestic-revenue infrastructure in EMDEs, where ceilings often have the most distortionary effects, and grounds the framework in empirical evidence from the GEMs database and real transactions across power, digital infrastructure, and other capital-intensive sectors.

Speakers:
Igor Zelezetskii, Senior Fellow, CCSI; Former CEO ACRA (Credit Rating Agency); Former VP, Moody’s

Arend Kulenkampff, Innovative Finance Lead for Nature Lab, Nature Finance

Waide Warner, Senior Fellow, CCSI; Former EMDC Project Finance Lawyer; Senior Fellow, Harvard Kennedy School

Robert Ginsburg, Senior Fellow, CCSI; Professor of Practice, Hult International Business School; Sr. Strategic Advisor – Nasdaq-listed Natural Resources Company

Moderated by:

Perrine Toledano, Director of Research and Policy, CCSI

Ana Maria Camelo Vega, Senior Economics and Finance Researcher, CCSI

Event Overview:
This 90-minute session combines a presentation of the paper’s key findings with reflections from senior practitioners on insurance and backtesting, investment and financing structures, regional and institutional considerations, and the path ahead, followed by an open audience discussion.

Why this matters right now: Andrew Howell, Environmental Defense Fund framed the stakes: “Global capital is not scarce, but access to affordable capital for things that are needed on the ground — such as clean energy and infrastructure — is still very difficult.” The energy transition is underway, he noted, but not moving fast or at the scale needed — and the cost of capital is one of the major hurdles in the way. This paper, he said, “fleshes out a very important piece of this puzzle.”
As lead author Igor Zelezetskii put it, we aren’t asking rating agencies to ignore sovereign risk — it’s asking them to assess it channel by channel, rather than applying it as a single blanket constraint. Igor walked through Moody’s data showing that of all the project finance transactions it rates, fewer than 4% sit above the sovereign — and nine out of eleven of those rely on an outright guarantee. As he put it, “the gate opens almost only for full credit substitution,” not because the underlying project risk was actually assessed and found to be
lower.
The data backs it up. An impromptu contribution from an audience member shared GEMS default data across roughly 10,000 private-sector counterparts of MDB/DFI- related transactions going back to 1994: in low-income countries, the sovereign ceiling implied roughly four times more defaults than were actually observed.
Arend Kulenkampff, NatureFinance, drawing on his time as a sovereign credit analyst at Fitch, walked the audience through exactly how rating agencies blend quantitative models with qualitative overlays — including how governance indicators can end up double-counted, first in the sovereign rating and again in the country ceiling model. His broader point: that qualitative judgment is often necessary. “Ratings are much more of an art than a science,” he noted, and leaning too heavily on mechanistic signals “conveys a false sense of precision.”
Robert Ginsburg, Senior Fellow, CCSI, shared early results from his backtesting of 50 projects across 7 countries, 7–8 industries and several business model archetypes: looking at the project-level business model characteristics alone (before even adding country-level indicators) correctly signaled political disruption in 41 of 50 cases suggesting that, from an investor’s perspective, project-level analysis may be a stronger indicator of political vulnerability than country-level factors alone.
Waide Warner, Senior Fellow, CCSI, reflecting on a career spent almost entirely structuring deals in emerging and developing economies, joked: “I didn’t want to do anything in the United States, because there was way too much political risk.” His broader point: well-structured infrastructure, financed in local currency, often carries less risk than the headlines suggest — “you eliminate the transfer and convertibility risk… and the foreign exchange risk” almost entirely.

In summary: the answer isn’t to ignore sovereign risk, and it isn’t to swap ceilings for a broad political risk model — it’s to make the credit analysis more granular, starting with the project and identifying which channels of sovereign transmission are actually active.

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