Africa (Commonwealth) _The African Union has planned to establish a new African credit rating agency next year to address the group’s concerns that ratings given to African countries are unjust.
The agency, which would create its own risk assessment for lending to African countries, would be based on the continent, according to Misheck Mutize, the African Union’s lead specialist for national support on rating agencies.
It will also provide context for investors when determining whether to buy African bonds or lend privately to countries. We already have a lot of interest from the corporate sector in supporting the implementation of this, Mutize said, adding that they want to deploy it in 2024.
The AU and leaders of member countries ranging from Ghana to Senegal to Zamia claim that the “big three” rating agencies – Moody’s, Fitch, and S&P Global Ratings – do not fairly assess the risk of lending to African countries and are quicker to downgrade them during crises like the COVID-19 pandemic.
All three rating agencies have denied any bias and claim that their ratings are based on the same formula across continents. Moody’s and S&P Global Ratings did not reply quickly to requests for comment. S&P’s lead analyst for sovereign ratings, Ravi Bhatia, recently stated that the firm uses the same criterion consistently across all regions.
According to a Fitch Ratings spokesman, all sovereign rating determinations are based on “globally consistent and publicly available criteria” and all rating factors are explicitly acknowledged.
Credit ratings, in general, are intended to assess a borrower’s risk of default and to factor in the terms on which banks and others will lend to them. Several African countries have outstanding international debts.
A United Nations Development Programme report published in April found that if credit ratings were less subjective, African governments might save up to $74.5 billion, citing “idiosyncrasies” in the frequency of ratings actions for African countries as an example.
Mutize described the new agency as an effort to rewrite the narrative. Our goal has not been to replace the big three; rather, we require them to provide access to international capital. He stated, “Our perspective has been to broaden the diversity of opinions.” We know that the big three rely on the recommendations of minor rating organizations. They have admitted that other smaller rating agencies have an advantage in knowing domestic dynamics.
Over the summer, AU finance ministers issued a resolution endorsing the new agency’s strategy, which was driven by the African Peer Review Mechanism (APRM), a division of the AU founded last year to promote governance across the continent. The identical decision is expected to be adopted by the full AU executive council in February.
Mutize stated that the agency would be self-funded and driven by the private sector, with AU oversight. “Investors have been extremely positive.” “They want to see what the outcome will be,” he continued. “Any investor will pay close attention to anything that brings them information.”
The African organization (AU) is a continental organization comprised of 55 member states located on the African continent. Over the summer, AU finance ministers issued a resolution endorsing the new agency’s strategy, which was driven by the African Peer Review Mechanism (APRM), a division of the AU founded last year to promote governance across the continent. The identical decision is expected to be adopted by the full AU executive council in February.
The African Union was stated in the Sirte Declaration on September 9, 1999, in Sirte, Libya, calling for the foundation of the African Union. The bloc was created on May 26, 2001, in Addis Abeba, Ethiopia, and officially inaugurated on July 9, 2002, in Durban, South Africa.
