African Union to establish credit rating agency for continent
The Africa Peer Review Mechanism (APRM) has kick started the process of designing a legal and structural framework for the establishment of a credit rating agency as an independent entity of the African Union (AU).
The framework, which is based on the outcome of an APRM feasibility study that supports the move to provide alternative and complimenting rating opinions, would also look at the financial implications of setting up the African Credit Rating Agency (CRA).
Professor Eddy Maloka, the Chief Executive Officer (CEO) of the APRM, made this known at a sensitisation meeting on APRM support to member states on international credit rating agencies.
“We will be reporting the outcomes to the Specialised Technical Committee of Finance Ministers Committee later this year,” he said.
The non-reflection of average improvement in political, economic, and social indicators in rating of African countries by international rating agencies, he said, explained the rise in discontentment of operations of those agencies.
Such inconsistencies, which had led to sovereign rating downgrades of African countries since the outbreak of COVID-19, he said, justified the rationale behind the decision of the AU Assembly in January 2017 to direct the APRM to provide support to AU Member States in the field of Credit Rating Agencies.
“Some countries were downgraded before they even registered a single case of Covid-19. Most of these rating decisions were merely based on expectations that countries’ fiscal situations would deteriorate and their health systems would be severely strained by the pandemic,” he stated.
Mr Ken Ofori-Atta, the Minister of Finance also indicated that the lack of transparency in methodologies, procedures, practices, and processes was a key challenge to ensuring fairness in ratings.
Also, the persistently low sovereign credit ratings on the continent since 1994, he said, had been a stumbling block to access finance on the international market for the development of the continent.
Mr Kwaku Ampratwum-Sarpong, the Deputy Minister for Foreign Affairs and Regional Integration, said the impact of credit ratings on growing economies would require the thorough scrutiny of methodologies, operations, and regulation of credit rating agencies.
“It is unfortunate that these agencies still remain the best available source of credible risk information for emerging economies to access international capital despite being accused of contributing to the global financial crises around the world at different points in history,” he said.
APRM is a specialised agency of the AU that was initiated in 2002 and established in 2003 within the framework of the implementation of the New Partnership for Africa’s Development (NEPAD).