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African Union plans to create credit rating agency for the continent

14 Sep 2023, 11:45 am
Financial Nigeria
African Union plans to create credit rating agency for the continent

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The AU believes international credit rating agencies have been giving erroneous ratings to African countries.

A view of African Union headquarters, Adis Ababa, Ethiopia

The African Union (AU) plans to launch its own sovereign credit rating agency next year following concerns that ratings assigned to countries on the continent by the “big three” international rating agencies – Moody’s, Fitch, and S&P Global Ratings – are unfair.

According to a recent report for the United Nations Economic Commission for Africa (UNECA), the international credit rating agencies make significant errors in their ratings yet continue to influence global financing decisions and the flow of capital.

The report says that Ghana’s President, Nana Akufo-Addo, criticised the agencies for exacerbating fiscal challenges in developing countries with unwarranted rating downgrades that shut governments out of the capital markets.

Also, a United Nations Development Programme (UNDP) study in April showed that African countries could save up to $74.5 billion if credit ratings were based on less subjective assessments, citing "idiosyncrasies" in the frequency of ratings actions for African countries as an example, according to Reuters.

Given the concerns, the AU wants to establish the African Credit Rating Agency as an independent entity of the group, with the aim of assessing the risk of lending to countries on the continent.

After its latest analysis, the “big three” concluded that sovereign credit ratings in Africa continue on a downward spiral, with five economies being downgraded in the first half of this year.

This trend, however, does not reflect the optimism of economic recovery projected for 2023 by the African Development Bank, the report for UNECA highlights.

Misheck Mutize, lead expert for country support on rating agencies with the African Union, said there is already quite a huge interest in the private sector to support the implementation of the African credit rating agency, which is targeting to launch in 2024.

All the three international ratings agencies deny any bias and say their ratings follow the same formula everywhere in the world.

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