THE RELATIONSHIPS BETWEEN SOVEREIGN COUNTRY RISK RATINGS, GOVERNANCE, ECONOMIC PERFORMANCE AND DOMESTIC INVESTMENT: MANAGERIAL AND POLICY LESSONS FROM POLAND AND SOUTH AFRICA

The relevance of sovereign country risk ratings has become essential for investment and governance management and policy. Risk rating agencies are critical players in financial and risk markets. This paper analysed the relationships between risk ratings, governance, economic performance and investment, based on a comparative analysis between Poland and South Africa. These two countries have taken different developmental paths as developed and developing countries, respectively. The study adopted a quantitative research approach using data from 1994 to 2021. The analysis entailed a descriptive and econometric analysis for both countries. The findings reveal significant differences between the two countries. Poland performed more efficiently than South Africa, which performed at approximately only 43% of that of Poland in 2021 and only 73% over the study period. Long-run relationships were estimated, with the formulated risk rating index as the dependent variable. The coefficients in the South African long-run model were much higher than in the case of Poland. In the case of Poland, the level of government debt had the highest impact on the dependent variable, while in the South African case, the level of GDP growth had the highest impact. The novelty of the paper is embedded in the unique combination of governance, risk management and economic variables. The results suggest that management with good governance, economic performance and the level of investment significantly impact countries' sovereign risk rating indexes. Policymakers need to ensure high levels of management, good governance, and government debt management. In addition, policy certainty must be ensured to attract investment by facilitating stable risk ratings.