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These days, credit is everything. It can make or break you. With good credit, the sky is the limit. Having bad credit, on the other hand, makes life more complicated. It becomes more difficult to receive a loan from a bank, to buy a car, or to obtain a mortgage for a house. Your credit score shows how likely you are to pay back debt in a timely manner, making it an important part of your financial life.
The same goes for countries, just on a much larger scale. Every year, credit rating agencies like Standard & Poor, Moody’s, and Fitch release reports of countries’ credit ratings, the highest score being a “AAA” rating. These ratings are based on the way that governments borrow to fund their operations, which results in the country issuing bonds. The credit rating determines the amount of interest they have to pay on that bond. The worse the credit rating is, the higher the interest rate you have to offer on the bond in order to get people to buy them. The better the credit rating, the lower interest on the bond.
Surprisingly, neither the United States nor the United Kingdom, two of the worlds most powerful countries, made the cut. In August 2011, the U.S. credit rating was downgraded by Standard & Poor from a “AAA” to a “AA+”. However, the interest rate on United States Treasury Bonds is still low, as the United States’ credit rating is still better than most, making it a worthwhile investment. This past April, The United Kingdom was downgraded by Fitch from a “AAA” to a “AA+”. Both downgrades come because of weaker economic and fiscal performance. Despite the downgrades, both countries are still deemed to have strong economic profiles, though not as strong as the 11 on this list.
Here are the eleven countries with across-the-board "AAA" ratings from S&P, Fitch, and Moody's, ranked in ascending order by population size.
Luxembourg – 531,441
The smallest on our list by a landslide, this country is tinier than the U.S. state of Rhode Island. How does a country so small do so well for itself? The answer is the banking sector within Luxembourg. One of the most sophisticated in the world, Luxembourg has a “AAA” rating largely due to the banking industry, making this country a worthwhile investment. With its infamous offshore accounts committed to confidentiality, investors have flocked to this landlocked European country for years to invest their money. Its strict regulations and sturdy legal structure contribute to its consistent economic stability.
Norway – 5 million
Located in the Scandinavian region of Europe, Norway earned its “AAA” primarily through its off shore oil-drilling operations in The North Sea. Petroleum exportation has funneled billions of dollars into the Norwegian economy. With a GNP of 336 billion, high taxation, and a stable, cohesive society, all three of the top credit rating agencies have ruled the long term outlook of the country’s economy to be stable, making it an attractive investment opportunity.
Singapore – 5.3 million
The world’s only sovereign city-state is also the only Asian country to make this list. Moody’s cites Singapore’s “very high economic, institutional, and government financial strengths, and its low susceptibility to risks from financial, economic, and political events” as reasons for earning an “AAA” rating. With an economy based largely on banking, Singapore is regarded a global hub for finance. Another stabilizing factor for Singapore’s economy is its exceptionally low unemployment rate of 2%. The country recently raised its economic growth forecast for 2013, with its GDP expected to grow as much as 4%.
Finland – 5.4 million
Finland’s “AAA” rating is largely based on trade. According to Fitch, Finland “is underpinned by sound public finances, a solid external position, high income per capita, demonstrable political and social stability and an impeccable debt service record”. Trade of Finland’s exports accounts for over one third of its GDP, which was calculated at 250 billion dollars in 2012. The largest exports are electronics and machinery, making up nearly half of the Finnish economy. Because of its sophisticated trading economy, among other things, Finland is one of the strongest countries to invest in.
Denmark – 5.59 million
Yet another Scandinavian country to make the list, Denmark is the smallest country in the region, but still has the goods to maintain a high credit rating. However, Denmark has recently seen some trials and tribulations. With the housing bubble bursting in 2007, Denmark has seen economic slumps, yet has still held on to their “AAA” rating. S&P sites Denmark’s economic competiveness as one of the factors that make Denmark such a strong and resilient country. Its economy is overwhelmingly based on the exportation of manufactured goods.
Netherlands – 16.7 million
Coming in at number six, with the seventeenth largest economy in the world, is The Netherlands. With a GDP of $704 billion, and unemployment at an impressively low 5%, The Netherlands maintains a stellar reputation as a world competitor. The Netherlands makes the list for several reasons, including openness to global trade, a wise and diverse investment portfolio, and an impressive economy, due to its commitment to foreign trade, exports, and energy.
Switzerland – 7.9
Switzerland has earned an “AAA” rating for a variety of reasons. Banking and financial institutions, manufacturing and exporting of goods (watches being a big one), strict fiscal and legal frameworks, and support of small and medium business organizations are just a few of the reasons as to why Switzerland has such financial strength and stability. With a diverse, well-rounded economy where Switzerland is at the forefront of many industries, and a GDP of $632 billion, it would be wise to look into investing in Switzerland.
Sweden – 9.5 million
It seems that Sweden is not just the home of beautiful models – it also proves to be a worthwhile country to invest in. Situated in Scandinavia between Norway, Denmark, and Finland, all countries that are also featured on our list, Sweden has proven itself in the global economy. With a GDP of $399 billion, Sweden is globally competitive due to its diverse economic portfolio spanning pharmaceuticals, exports, machinery and automobiles. Its innovative economy is what has earned this country a “AAA” rating from the top credit rating agencies.
Australia – 22.68 million
With the third largest population on the list, the land Down Under is doing pretty well for itself. One contributor to Australia’s success is its commitment to economic freedom, as well as strict its regulations. With that, the business climate has been very cautious and stable, making it a very attractive country for businesses, government and people to invest in. However, recent news reports that Australian bonds have become slightly weaker after a continued strong performance from Germany. Despite that, Australia still proves to be a strong and reliable country for investments.
Canada – 34.88 million
It would seem America’s friendly neighbor to the North is doing very well. They were recently reaffirmed with a “AAA” rating from Standard and Poor earlier this month, with the outlook on the long term rating being stable. This is due to Canada being the freest economy in North America, with the foundations of economic freedom being based on extensive measures to protect rights. Another large contribution is due to extensive commitment to open market policies that in turn usher global trade with other countries. Because of this, Canada is a very attractive country to invest in.
Germany – 81.9 million
Last but not least, Germany. The largest country on this list, Germany has the largest, as well as strongest, national economy in the European Union, and the fourth largest economy in the world. The reason behind its stellar “AAA” rating is Germany’s position as the second largest exporter in the world behind China. It has one of the most diversified, sophisticated economies in the world. S&P states, “Germany reflects our view of modern, highly diversified, competitive economy, with an impressive track record of prudent fiscal policies and expenditure discipline.” It’s a lucrative gravy train to hop on board of, but only if you can afford it. Shares of German companies are, on average, $134 apiece.
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