What do credit rating agencies primarily assess?

Credit rating agencies primarily assess the likelihood of default by governments and other entities that issue debt. This assessment is crucial because it helps investors understand the risk associated with lending money to a government. A credit rating reflects the agency's opinion on the government's creditworthiness, which is influenced by various factors including financial stability, economic performance, debt levels, and ability to generate revenue.

This focus on default risk is significant for investors because a higher likelihood of default typically leads to higher interest rates on debt issuance, while a lower risk of default can result in lower interest rates. By evaluating factors like fiscal management, economic trends, and overall financial health, credit rating agencies provide an important service that helps guide investment decisions and maintain stability in financial markets.

The other aspects of government functioning, such as potential expansions, effectiveness of programs, or economic forecasts, while important in their own right, do not directly pertain to the core function of credit rating agencies, which is fundamentally about assessing repayment risk.