The African Union (AU) is making arrangements to launch a credit rating agency for the continent as part of its efforts to address concerns about the fairness of existing ratings assigned to African economies by foreign rating agencies.
AU’s lead expert for country support Misheck Mutize, said the proposed agency will provide a fresh perspective on the risk associated with lending to African countries.
Mutize clarified that the goal of the proposed rating agency would not been to replace the big three global rating agencies but that to widen the diversity of opinions on Africa’s ratings.
He explained that this agency, when established in 2024, would supply contextual information to investors when they are making decisions about purchasing African bonds or extending private loans to African nations.
The AU lead expert said: “Our goal has not been to replace the big three…we need them to support access to international capital. Our view has been to widen diversity of opinions.
“We know the big three follow the opinion of other smaller ratings agencies. They’ve acknowledged that other smaller ratings agencies have got an edge in understanding domestic dynamics”, Mutize added.
In recent times, AU countries have been accusing the leading rating agencies – Moody’s, Fitch, and S&P Global Ratings – of bias in their evaluations of lending risks in African countries.
The African Union, in collaboration with member-nations such as Ghana, Senegal, and Zambia, alleges that the major three credit rating agencies tend to downgrade African nations more swiftly, especially during crises like the COVID-19 pandemic.
As expected, the rating agencies have denied the allegations and maintained that their rating methodologies were consistent across geopolitical zones globally.
By design, credit ratings serve as a tool to assess the likelihood of a borrower defaulting and help determine the terms under which financial institutions and others will provide loans
It would be recalled that in July this year, during the 5th Ordinary Session of the Specialized Technical Committee, which has ‘Improving Africa’s Access to Capital: Debt Management and the Rising Influence of Credit Rating Agencies’ as its theme, the AU finance ministers approved a resolution supporting the establishment of a new agency.
The initiative was led by the African Peer Review Mechanism (APRM), a unit of the AU, which was created in 2022, to enhance governance across the continent.
