Question

Why might internal and external sovereign debt have different credit ratings?

Answer 1

Internal and external sovereign debt have different credit rating because internal sovereign debt are not exposed to the external markets as they are not having their risk associated with the exchange rate whereas external sovereign debt have risk associated with the movement in the exchange rate of a domestic company in respect to the foreign countries and it will mean that these exchange rate fluctuations are exposing these Federal external debt instrument to another form of risk which is not present in internal sovereign debt.

Internal sovereign debt are also not exposed to the Macro conditions of the other countries whereas external sovereign debt will also be getting adversely impacted by the strong fundamentals of the other countries and the weak movement of the domestic country exchange rate in association with the foreign countries so external sovereign debt are getting influenced by the global & Exchange rate factors.