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The African Union plans to launch a new African credit rating agency in 2024. This is in response to dissatisfaction with the ratings given to African countries by the three major international credit rating agencies: Moody’s, Standard & Poor’s, and Fitch.
The African Union plans to launch a new African credit rating agency in 2024. This is in response to dissatisfaction with the ratings given to African countries by the three major international credit rating agencies: Moody’s, Standard & Poor’s, and Fitch. African countries argue that international rating agencies are biased against them and that their ratings do not accurately reflect the true creditworthiness of African countries. For example, only two African countries, Botswana and Mauritius, are currently rated investment grade by all three major rating agencies. The rest of Africa is either rated junk or has no rating at all.
This dissatisfaction was mainly for a couple of reasons. First, international credit rating agencies typically use data that is several years old to assess the creditworthiness of African countries, this data may not accurately reflect the current economic situation in these countries. Second, international credit rating agencies often overlook the specific challenges that African countries face, such as high levels of poverty, debt, and political instability. These challenges can make it more difficult for African countries to repay their debts and meet their financial obligations. Third, some critics have argued that international credit rating agencies are biased against African countries and give them lower ratings than they would give to countries in other regions. This bias may be due to a lack of understanding of the African continent or to racism.
A lead expert for country support on rating agencies with the AU said the agency would craft its own assessment of the risks in lending to African countries based on the continent. Moreover, the agency would add context to investors’ information when deciding whether to buy African bonds or lend privately to countries. AU finance ministers passed a resolution to endorse the plan for the new agency and the full AU executive council is expected to adopt the same resolution in February.
The lead expert stressed that the launch of the African credit rating agency was not to replace the big three as they are needed to support access to international capital. The planned new AU credit rating agency would be self-funded and private-sector-driven, with AU oversight. (ETM)
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The dissatisfaction of African countries with the ratings given to them by the international credit rating agencies is a reminder of the need for Africa to have its own independent financial institutions. This will help to ensure that African countries are not at the mercy of international credit rating agencies. The African Union is currently considering the creation of such an agency.
