Raising concerns over the use of World Bank’s Worldwide Governance Indicators in ratings assessment by credit ratings agencies, especially for emerging economies, Chief Economic Adviser V Anantha Nageswaran on Wednesday said there is a need for the World Governance Index to be more transparent and less subjective.
“The World Bank….has something called the World Governance Index, which unfortunately or fortunately plays a very significant part in opaque and non-transparent ways in the credit rating assessment deployed by the three credit rating agencies in assigning letter-grades to credit rating of member countries, particularly emerging markets. This World Governance Index itself is a composite of several sub-indices, which are purely based on the subjective opinions of some so-called expert institutions which do not have presence on the ground nor do they understand whether the context in which they are making these judgements is appropriate or apt for the member countries. But these indices become an important part of the assessment methodology of the credit rating agencies and they do not reveal the extent to which these indices are implanted in their assessment process, the weights they carry, because there seems to be qualitative overlays on top of qualitative assessments,” Nageswaran said at a seminar on ‘Multilateral Institutions for the 21st Century’ organised by the Department of Economic Affairs, Ministry of Finance.
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