African Union to establish regional rating agency in 2024 to address bias assessments
To address the perceived bias in global rating agencies’ assessments of African economies, the African Union aims to create a new African credit rating agency that will be introduced in 2024.
Lead expert at the AU, Mischeck Mutize, explained that the new agency will provide independent assessments of the risks associated with lending to African countries and their economies.
He further noted that the agency, which will be headquartered in Africa, will also provide additional context to assist investors in decision-making with regard to African bonds and private lending avenues.
“The new agency is envisioned as a self-funded, private-sector-driven entity with AU oversight. Investors have shown a positive reception to this development, as they seek alternative sources of information for their investment decisions,” Mischeck Mutize said.
“AU, along with leaders from its member nations, has voiced concerns that the ratings provided by these agencies do not accurately evaluate the risk of lending to African countries,” he added.
Over the last few years, credit rating agencies such as Fitch, Moody’s and S&P Global Ratings have dominated the space with their periodic verdict of economies including Africa.
These verdicts have, however, been criticized by African leaders who believe there is bias with the assessment given on their respective countries and therefore called for reforms.
They have also indicated that these bias assessments tend to influence investor decisions in capital allocation, thereby impacting on economic stability.
But the global rating agencies have maintained that their rating methodologies are consistently applied and used in the right manner with best practices.
In April 2023, the United Nations Development Programme in a study, highlighted that African countries could potentially save up to $74.5 billion if global credit ratings were based on less subjective assessments.
The report cited disparities in the frequency of rating actions, particularly, on African nations as an example.
Meanwhile, the AU’s finance ministers have passed a resolution in support of the establishment of the rating agency for Africa.
MA/NOQ
Source: www.ghanaweb.com
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