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New African credit ratings agency to curb ‘unfair treatment’ coming next year
A credit ratings company is being established to meet the unique needs of Africa’s developing countries, a project that stemmed from complaints of unfair treatment by international credit ratings firms.
An African Union official said Saturday that this new agency for Africa’s sovereign borrowers will be ready by next year.
Albert Muchanga, the regional bloc’s commissioner for development, trade, tourism, industry, and minerals, told reporters in Ghana’s capital, Accra, that the institution would not be owned by the regional bloc.
He said it would be independent and professional.
“We feel that we’ve not been treated very well when it comes to ratings and the cost of borrowing,” Muchanga said.
“We want an institution developed by Africans to contribute to the process of de-risking the African capital market so that in the end, we are able to have a situation where we can borrow competitively at home and abroad.”
African finance ministers first considered setting up such a body in 2021 amid complaints of unfair treatment by international credit ratings firms that they said lead to higher interest rates relative to what other emerging-market borrowers and developed countries pay.
Albert M. Muchanga, Commissioner for Trade and Industry of the African Union Commission. Muchanga said the African Peer Review Mechanism, African Development Bank, African Export-Import Bank, and the AU Commission are Undertaking the task.
The project is at its next operationalisation phase, which entails “coming up with the final work plan to ensure that we are able to roll it out,” he said.
Today, three agencies, Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings, are regarded as the most significant.
Rating scales vary among firms, with the top three agencies using alphabetical scales, where AAA represents the highest level and C or D represents the lowest.
Additionally, pluses, minuses, and numbers are used to indicate sub-levels of creditworthiness.
Sovereign credit ratings are vital for developing countries like South Africa as they significantly impact economic stability and growth prospects.
These ratings, provided by agencies such as Standard & Poor’s, Moody’s, and Fitch, assess a country’s creditworthiness and its ability to meet debt obligations.
A favourable rating can attract foreign investment by signalling a stable economic environment, thereby providing essential capital for infrastructure and development projects.
A positive rating reduces borrowing costs for African countries, including South Africa, making it cheaper for the government to finance public services and development initiatives.
Conversely, a downgrade can lead to higher interest rates and reduced investor confidence, exacerbating financial strain and potentially leading to currency depreciation.
This can hinder economic progress and increase the cost of imports, affecting the overall economy.
The United Nations Economic Commission for Africa report found that in the first half of 2023, the top rating agencies issued 13 negative decisions to 11 African countries.
The negative assessments included rating downgrades and negative outlook analyses.
“These developments have reversed the optimism amongst investors on the international financial markets that African countries are recovering from the devastating Covid-19 economic shocks,” the report states.
source:New African credit ratings agency to curb ‘unfair treatment’ coming next year – BusinessTech
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