Panafrican News Agency

AU finance ministers endorse proposed international sovereign rating agency

Yaoundé, Cameroon (PANA) – Ministers of finance, economy and planning approved a new roadmap towards the creation of a ratings agency on Tuesday to help provide sovereign rating services to countries and companies in order to enhance rapid access to the international debt markets.

The decision was made at the 3rd Specialised Technical Committee (STC) meeting on Finance, Monetary Affairs, Economic Planning and Integration, taking place in Yaoundé, Cameroon, where the ministers and experts drawn from ministries of finance, central banks and economic think-tanks are meeting.

Cameroonian Finance Minister Louis Paul Motaze, chairing the ministerial Committee, said an agreement was reached among the government representatives for experts to review and present a comprehensive report on the proposal to create the International Credit Rating Agency of the AU.

The proposal to create the International Credit Rating Agency body was presented before the STC on finance following a request by the African Peer Review Mechanism (APRM) for the continent to build its own agency to provide alternative review of sovereign risks and provide the ratings of governments.

Dr McBride Nkhalamba, Head of Division, Research and Development at APRM headquarters in South Africa, told the ministerial meeting most countries were unable to access the international debt markets because of unfair rating of their sovereign assets and exaggerated risk levels of political risk.

Dr Nkhalamba said some countries suffer from unfair ratings of their political economy because the foreign ratings agencies fail to appreciate the level of sophistication available within those economies.

“The international credit agencies do not do justice and they do not give us a fair deal,” Nkhalamba said.

The experts said the creation of the Pan African Credit Rating Agency, a financial institution tasked with providing a thorough review of the level of national assets, economic governance and revenue flows from the African countries, could regulate the conduct of rogue international rating bodies.

The expert said the proposed agency could provide the ratings methodology and point out the shortfalls of the foreign ratings agencies, which deny some countries access to the foreign debt markets.

Nkhalamba said the AU has proved that most rating agencies have inherent weaknesses and most circumstances prove the lack of soundness in the ratings provided on African asset qualities.

Dr Mesheck Mutize, an independent Sovereign Credit Rating Analyst at the Global Capital Markets Sovereign Debt Management, said since 1994, when the first sovereign rating of an African country was done in South Africa, 32 African countries have been rated. Out of those rated, only four countries have been cleared as credit worthy. The rest have junk-status.

The ratings give potential investors an indication of potential risks or failure to service debts, determine the rate at which banks and local companies are able to access funds through bonds and issue bonds for expansion of business.

Mutize said even though most countries in Africa have had positive growth, most ratings agencies have been giving negative ratings, yet countries from Africa get over-subscriptions on their sovereign debt instruments issued at the international markets for financing of investment programmes at home.

“If we are junk status, why are international investors interested on our sovereign bonds. This is an indication of the biased focus on the formal economy while we have a robust informal economy in Africa,” Mutize said.

He said the creation of the ratings agency would end the dictatorial position and allow countries opportunities to critique the alternative ratings provided by other agencies.

-0- PANA AO/MA 6March2019