SINGAPORE - Sovereign downgrades are likely to outpace upgrades in 2016, Standard & Poor's Ratings Services said in a a report released on Wednesday (Jan 7)

Sovereign ratings, which are credit ratings of a country or sovereign entity, give investors insight into the level of risk associated with investing in a particular country. Obtaining a good sovereign credit rating is usually essential for developing countries in order to access funding in international bond markets.

S&P said that among the 131 sovereigns it rates globally, negative outlooks at 25 outstripped positive outlooks at eight by a ratio of 3 to 1, as at Dec 31, 2015.

"The outlook balance - positive minus negative outlooks - has dropped to -17 from the seven-year high of -4 in June 2015," said Moritz Kraemer, S&P's chief rating officer for sovereign ratings. "This constitutes the most negative six-monthly swing in the outlook balance since December 2008."

This outlook distribution suggests that negative rating actions are likely to continue to outnumber positive actions over the coming 12 months, said S&P. And it also indicates that the dominance of downgrades is likely to accelerate this year compared to last, it added.

Negative outlooks have outnumbered positive outlooks since early 2008

However, the second half of 2015 saw a reversal of the gradually improving trend in the outlook balance that had begun in 2013.

S&P said that over the past year, the outlook balance has deteriorated in all global regions except the Asia-Pacific, which continues to have a rare positive balance of +1.

The deterioration was most pronounced in the Middle East, Commonwealth of Independent States (CIS), and Africa, where the negative balance doubled to -12, an all-time regional low. Latin America and the Caribbean (to -4 from -2) have seen a more moderate deterioration during 2015, as has Europe (to -2 from zero).

Global sovereign creditworthiness has declined slightly since the onset of the global financial crisis in 2008. The average long-term sovereign credit rating has fallen by just over one notch to between 'BBB-' and 'BBB', compared with just below 'BBB+' in 2008, said S&P.

The average rating as weighted by countries' GDP has also trended downward, although it has been slightly more stable, currently standing marginally above 'A+'. This is comparable with sovereign ratings in 2005, but is slightly lower than the 'AA-' peak in mid-2008, said the agency.