ECA and APRM support African countries on sovereign credit ratings and rating regulations
The Innovative Finance and Capital Markets Section, Private Sector Development and Finance Division, United Nations Economic Commission for Africa (ECA) in collaboration with African Peer Review Mechanism (APRM), hosted a meeting on credit ratings from 5 to 7, December 2022. The 3-day meeting consists of three segments: the 1st Meeting of Network of National Regulators on Credit Ratings; the 2nd Meeting of Member States Credit Ratings Liaison Officers; and the 7th Ad-hoc Committee Meeting on Credit Ratings.
Amongst the issues discussed were the low credit ratings and persistent downgrades of African Governments debt, which is detrimental to the continent’s investment competitiveness and recovery efforts from the COVID-19 pandemic shock. In his opening remarks, Dr. McBride Nkhalamba, the Director of Specialized Governance and Reporting, APRM highlighted the credit ratings are an important part of the global financial architecture reform. “It is important for African countries to address the regulatory gaps and promote local sovereign credit rating agencies”, Dr McBride echoed.
Ms. Sonia Essobmadje, Chief, Innovative Finance and Capital Markets Section, Private Sector Development and Finance Division, ECA, also addressed the importance of credit ratings and for the timing of this meeting in her welcome remarks. “This meeting comes at a time when the continent is facing enormous debt management challenges and difficulties in improving or maintaining good credit ratings”, said Ms. Sonia Essobmadje. “The meeting should aim to explore ways to improve and harmonize the regulation of credit rating agencies on the continent”, she added. She stressed the importance of building capacity and improving the reliability and availability of data.
The meeting provides a platform for technical experts to exchange information and learn from each other on ways to minimize the challenges of negative rating actions. It is envisaged that, if countries share experiences and exchange technical information on preparing for the upcoming rating reviews and an approach to address specific risk factors assessed by rating agencies, they will avert a downgrade and, at best, can improve their ratings.
Experts further discussed the fundamental functions of credit ratings, their failures during multiple financial crises showed that regulatory and supervisory oversight on rating agencies was crucial to enhance integrity, accountability, good governance, and independence of credit rating activities. Representatives of member States also shared their experiences in engaging credit rating agencies strengthening regulatory frameworks and adapting to a changing environment with new and emerging challenges.
The meeting recommended Governments to strengthen their Credit Ratings Country Liaison Teams to be able to respond to emerging needs and better engage with rating agencies. Experts further recommended the National Regulators to champion the enactment of legislation on Credit Rating Services to ensure that regulation of international credit rating agencies is ‘at least at par with international requirements’ of regulated and accountable credit rating agencies. The meeting also successfully adopted the Terms of Reference for Network of National Regulators of Credit Rating Agencies.
The meeting was attended by representatives from 14 African countries, rating agencies, regulators and partners, as well as individual experts.