African Regulators Urged to Supervise Credit Rating Agencies

This is to avoid erroneous assessments that discourage investment on the continent

Africa should develop regulatory mechanisms to supervise international credit rating agencies (CRAs) to avoid erroneous assessments that discourage investment on the continent, an experts report has recommended.

“African regulators need to develop regulatory mechanisms to supervise the work of international CRAs operating within their respective jurisdictions to ensure proper conduct of business and enforcement. It is imperative for regulators to ensure accountability on inaccurate rating opinions issued in Africa,” African experts said in a report, African Sovereign Credit Review Mid-Year Outlook.

Effective regulation should ensure that rating agencies stay independent, keeping up the integrity and quality of the rating process

Poor ratings affect investment in Africa

The joint report by the UN Economic Commission for Africa (UNECA) and the African Peer Review Mechanism (APRM) says despite positive economic projections, Sovereign Credit ratings in Africa are getting worse.

A sovereign credit rating is an independent assessment of the credit worthiness of a country. Sovereign credit ratings give investors insights into the level of risk associated with investing in the debt of a particular country, including any political risk.

The review report further recommended that African countries should regulate the publication of ratings and a rating calendar so as to curb impromptu rating announcements that disrupt financial markets.

“The recent downgrading of five African countries by the top three CRAs has reversed the optimism amongst investors on the international financial markets that African countries are recovering from the devastating COVID-19 economic shocks, ” the report said, citing that five African countries were downgraded by international credit rating agencies in 2023.

In 2023, Standard & Poor’s, Moody’s Investors Service and the Fitch Group downgraded Ghana, Nigeria, Kenya, Egypt and Morocco, citing increasing government financing needs and pressures from the upcoming ‘wall of Eurobond maturities combined with poorly structured terms of international bonds.

Besides, the global credit rating agencies based their downgrades on ‘weakening external liquidity position due to an unfavourable foreign exchange trajectory, the growth of debt service cost and the high yields on the Eurobond financial markets.’