Two key issues for sovereign analysis:

• A government's ability to pay.
• A government's willingness to pay.

Both quantitative and qualitative analyses are employed in assessing sovereign risk with ratings performed in both local currency and foreign currency. It is important to evaluate the ratings in both currencies since historically the default rate on foreign currency debt has been greater than the default rate on local (or domestic) currency debt; there is different risk in the two ratings. Generally, if an issuer is planning to default, it is more likely to do so with a foreign currency issue. Thus, the ratings need to be performed for both types of issues.

A key distinction for sovereign creditworthiness is whether its domestic currency is considered to be a reserve currency, that is, one that is fully convertible and held by foreign central banks and other investors.

The most important considerations for evaluating debt in sovereign countries are:

• Institutional effectiveness and political risks
• Economic structure and growth prospects
• External liquidity and international investment position
• Fiscal performance, flexibility, and debt burden
• Monetary flexibility