The updated methodology can be downloaded here. It provides refinements and clarifications to Scope’s analytical approach for assigning credit ratings to sub-sovereigns, reaffirming that institutional integration is central to rating outcomes. Higher integration supports sub-sovereign ratings near the sovereign anchor, while lower integration requires stronger credit fundamentals, reflecting sovereign support, structural constraints, and the fiscal role of institutional frameworks.

Methodology highlights

The methodology for rating sub-sovereigns:

1. Assesses the institutional framework to determine how closely a sub-sovereign is integrated with its sovereign or higher-tier anchor.
    
2. Establishes an individual credit profile (ICP) based on four risk pillars: debt and liquidity, budgetary performance and flexibility, economic fundamentals, and ESG factors.
    
3. Maps the ICP score to establish an indicative rating.
    
4. Refines the indicative rating with additional adjustments to reflect an issuer’s systemic importance, sensitivity to the rating anchor, or rare exceptional factors.

The approach reflects Scope’s emphasis on institutional integration, particularly during systemic stress, and enables peer comparison within the same national context.

Summary of the key changes

With this update of the methodology, Scope introduces targeted enhancements and clarifications to strengthen transparency, consistency, and usability, while reaffirming the core analytical framework.

• Full integration of ESG factors into the core analytical framework by embedding Governance (10%), Social (7.5%), and Environmental (2.5%) in a dedicated 20% ICP pillar.
   
• An enhanced institutional assessment that expands the definition of public funding to include both direct and indirect channels, and recognises horizontal coordination mechanisms among sub-sovereigns.
   
• Refinements to the ICP scoring framework, including:
  
  o Continued use of the debt-to-operating revenue ratio as the primary quantitative indicator of debt burden, with the payback ratio (gross debt to operating balance) applied qualitatively to provide additional context on debt sustainability.
  
  o A more structured approach to assessing contingent liabilities, covering both explicit and implicit exposures.
  
  o Clarified liquidity assessment criteria, allowing high scores where strong central or alternative funding access exists, even with limited cash reserves.
  
  o Continued use of GDP per capita as the primary indicator of income and tax capacity, with unemployment rate applied qualitatively to provide additional context on labour market strength.
  
  o Introduction of typical score characteristics across all Institutional Framework and ICP components to ensure greater transparency and comparability.
   
• Streamlined methodology language and structure to improve clarity, consistency, and usability.