Gender parity and sovereign credit rating have a direct relationship. Let’s see how. Rigorous studies have established the fact that macroeconomic and social variables determine the Sovereign Credit Rating (SCR). The Credit rating agencies (CRAs) use both qualitative and quantitative metrics to determine the SCR. The common belief is that these determinants primarily consider economic variables. However, do you know that gender parity can help improve materially its credit score?

What is the Role of Sovereign Credit Rating?

SCR assesses the creditworthiness of a country. It gives the investors insights into the level of risk associated with a country’s debt. In other words, it determines the nation’s ability to secure funding in the international bond markets. A sovereign rating upgrade makes it easier for banks to access funds from the global capital market at a cheaper cost. Simply put, SCR aids the flow of capital to emerging markets.

How is Sovereign Credit Rating Set?

Generally, at the request of the government, a CRA evaluates a country’s economic and political environment. Then, it assigns a rating ranging from AAA grade to D grade. The three influential credit rating agencies include Moody’s, Fitch, and Standard & Poors. Although there are other smaller credit rating agencies, these three agencies exert the highest influence over market decision-makers. Due to globalization, there is an increasing appetite of investors to tap into emerging markets, which has immensely increased the importance of SCR in recent years.

According to a study commissioned by Cantor and Packer in 1996, six variables, namely, GDP growth, per capita income, economic development level, inflation, default history, and external debt are relevant to determine the SCR. The study covers  81 countries, including developed and developing nations. The CRAs included qualitative factors such as social and political aspects even if they are not easy to quantify.

While analyzing the relationship between SCR rating and GDP growth, most studies observed a positive correlation, which is an expected conclusion. Furthermore, these studies have also depicted that gender equality has a strong and positive impact on GDP per capita.

Gender Parity and GDP Growth

The Correlation is Strong between Gender Parity and GDP Growth

Gender Parity and GDP Growth

Based on research by McKinsey Global Institute, in 2015, $12 trillion could be added to the global GDP by 2025 by advancing women’s equality. The public, private, and social sectors need to act in synergy to close the gender gap in work and society. The research also demonstrated that women make up more than 50% of the talent pool in the US and are responsible for over 80% of the buying decisions. Hence, by not offering leadership opportunities to women in the workplace, businesses are limiting their own profit potential. McKinsey proposes an attainable best-in-case model:

“Every state and city in the United States has the opportunity to further gender parity; if each U.S. state matches the state exhibiting the fastest rate of gender parity growth, $2.1 trillion of incremental GDP will be achieved by 2025”, or a 10% incremental increase to the status quo.

Gender parity and sovereign credit have a direct relationship. As per the McKinsey study 2019, “taking action now” to advance gender equality could add $13 trillion to the global GDP in 2030, compared with the gender-regressive scenario. However, in case “no action” is taken, it is estimated that the global GDP growth could be $1 trillion lower in 2030. The study further provided a middle path, which says, “taking action only after the crisis has subsided” rather than now, would reduce the potential opportunity by more than $5 trillion. Henceforth, there will be an 11% increase in GDP, in the case acted now relative to the “do-nothing” scenario.

This scenario would also raise the female-to-male labor-force participation rate from 0.61 in 2020 to 0.71 in 2030, with the creation of 230 million new jobs for women globally in 2030, compared with the “do-nothing” scenario. The research covered six countries: France, India, Indonesia, Kenya, Nigeria, and the United States, to understand regional differences. With the gender equality actions in place now, every nation is expected to experience an average of 8–16% increase in GDP in 2030, relative to no actions now.

GDP and Gender Equality

A similar study by European Institute for Gender Equality (EIGE) revealed that: By 2050, improving gender equality would lead to an increase in EU (GDP) per capita by 6.1–9.6%, which amounts to €1.95 to €3.15 trillion. Moreover, reducing the gender gap in Science, Technology, Engineering, and Mathematics (STEM) education areas could help reduce the skills gap, which ultimately will foster economic growth through higher employment and better pay. Closing the STEM gap would lead to an increase in GDP per capita by 2.2–3%, amounting to €610 — €820 billion in 2050.

As stated by John Chambers, Chairman, Cisco — “Equal representation of men and women in all businesses is the key to a country’s GDP growth. There is an incredible opportunity for us if we empower women, promote their inclusion across all industries, and remove barriers for female entrepreneurs.” in a panel discussion at the Global Entrepreneurship Summit (GES). He added, “As I started my homework, I realized that the most important impact you can make on the GDP of India or the US is by equalling — by involving women in business, start-ups, and overall approach”.

Gender Equality and Credit Rating

Countries with Higher Gender Equality Have Higher Sovereign Credit Ratings

Gender Gap and Per Capita Income

Gender parity and sovereign credit have a strong correlation. A recent Moody’s report indicates that countries with inclusive gender policies would achieve improved credit conditions post COVID. The firm assessed social risks faced by sovereigns, through incorporating the UN’s gender inequality index and found significant variation among emerging markets. For instance, countries such as Chile, Peru, and China, which have integrated gender lens into coronavirus response measures, have higher credit scores, compared to countries such as Kenya, whose creditworthiness has been projected to decline further, as it weighs lower in terms of gender-sensitive measures. According to Moody’s, there tends to be a stronger relationship between a country’s per capita income level and gender equality performance.

In the Global Gender Gap Report 2020 by the World Economic Forum (WEF), Iceland, Norway and Finland emerged top with average gender parity scores of 0.87, 0.84, and 0.83 out of 1.0. The three countries rank fairly in credit rating with scores above A3. The worst performing countries included Congo, Pakistan, and Iraq with average gender parity scores of 0.58, 0.56, and 0.53. All these three countries have credit rating scores below B2.


Gender parity and sovereign credit Rating are linked. Unfair and inequitable treatment of women carries a substantial economic cost. Educating women leads to a larger and more productive society, resulting in higher GDP growth and increased per capita income. We believe the emerging nations can immensely gain economic benefits by focusing on improving access to education, economic inclusion, and growth opportunities for women. Hence, it is crucial, particularly for the emerging nations, to create a level playing field for men and women and efficiently implement gender equality measures to achieve healthy sovereign credit ratings (SCR).

Authored by Ekta Bhatia

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