Call for Africa to supervise credit-rating agencies

Africa should develop regulatory mechanisms to supervise international credit-rating agencies (CRAs) to avoid erroneous assessments that discourage investment, experts have recommended.

“African regulators need to develop regulatory mechanisms to supervise the work of international CRAs operating within their respective jurisdictions to ensure proper conduct of business and enforcement.

“It is imperative for regulators to ensure accountability on inaccurate rating opinions issued in Africa,” experts said in a report, titled ‘African Sovereign Credit Review Mid-Year Outlook’.

The joint report by the Economic Commission for Africa (ECA) and the African Peer Review Mechanism (APRM) says despite positive economic projections, sovereign credit ratings in Africa are getting worse.

A sovereign credit rating is an independent assessment of the creditworthiness of a country.

Sovereign credit ratings give investors insight into the level of risk associated with investing in the debt of a particular country, including any political risk.

The review report further recommends that African countries regulate the publication of ratings and a rating calendar so as to curb impromptu rating announcements that disrupt financial markets.

“The recent downgrading of five African countries by the top-three CRAs in 2023 has reversed the optimism among investors on the international financial markets that African countries are recovering from the devastating economic shocks of Covid-19,” the report says.

In 2023, Standard & Poor’s, Moody’s Investors Service, and the Fitch Group downgraded Ghana, Nigeria, Kenya, Egypt and Morocco, citing increasing government financing needs and pressure from the upcoming “wall of Eurobond maturities combined with poorly structured terms of international bonds”.

The International Monetary Fund (IMF) and Fitch revised and downgraded their economic growth forecasts for Namibia in 2023.

The IMF lowered its gross domestic product (GDP) growth forecast from 3,2% to 2,8%, and Fitch from 3% to 2,6% earlier this year.

The global credit rating agencies based their downgrades on the “weakening external liquidity position due to an unfavourable foreign exchange trajectory, the growth of debt service cost, and the high yields on the Eurobond financial markets”.

Nigeria and Kenya have rejected Moody’s rating downgrades, citing a lack of understanding of the domestic environment by the rating agencies and that their fiscal situation and debt were not as bad as estimated in Moody’s review. – ECA