Africa: Enhancing transparency in credit rating methodologies

 

In the dynamic landscape of global finance, credit rating has a significant influence on the economic prospects of nations. For African countries, the transparency of credit rating methods is not just a technical issue, but a critical factor for better engagement and communication with rating agencies.

Despite the continent’s vast potential and the diversity of its economies, countries often face risks that are perceived as disproportionate, affecting their ability to access affordable financing, attract investment and achieve sustainable development.

To address these issues, the United Nations Economic Commission for Africa (ECA) and the African Peer Review Mechanism (APRM) hosted a workshop in Accra. The three-day event, which ran from July 9 to 12, 2024, brought together stakeholders from Ghana, Zambia, and major credit rating agencies, including S&P Global and Moody’s, to discuss the credit rating methodologies.

The workshop aimed to provide a comprehensive understanding of the factors that influence these ratings and to identify actionable steps that African countries can take to enhance their creditworthiness.

“By bringing together diverse stakeholders, we can foster a deeper understanding of credit rating methodologies and work collaboratively to improve the financial stability and economic prospects of African nations,” said Sonia Essobmadje, Chief of Section on Innovative Finance at the ECA.

The workshop included closed sessions with credit rating agencies, where participants engaged in simulations of sovereign credit rating exercises and interactive Q&A sessions.

Ms. Essobmadje explained that “These activities were designed to demystify the rating process and provide practical insights into how countries can better present their economic data and policy measures to rating agencies.”

McBride Nkhalamba, Acting Director of Governance and Specialized Reporting at APRM, highlighted the significance of this initiative, stating, “Consistency in policy communication and transparent reporting are imperative in fostering investor confidence and mitigating potential rating downgrades.”

Mr Nkhalamba pointed out that the APRM’s technical support missions had identified gaps in institutional coordination and communication that need to be addressed to improve credit ratings. He underscored the importance of the recently established African Credit Rating Agency (AfCRA), describing it as “essential for developing assessments that truly reflect the unique economic and political landscapes of African nations,” adding that “this is a critical step towards achieving financial stability and fostering sustainable growth across the continent.”

Ms. Essobmadje also emphasized that “to improve credit ratings, African countries need to maintain sound fiscal policies, enhance transparency and governance, and actively engage with credit rating agencies to provide accurate and comprehensive economic data.”

ECA and APRM have been at the forefront of supporting African nations in their efforts to achieve fair and accurate credit ratings. Through expert meetings and collaborative efforts, the two organizations have equipped countries with the knowledge and tools needed to navigate the complex landscape of sovereign credit ratings.

Twice a year, ECA and APRM jointly produce a report assessing the credit rating landscape across the continent. This report evaluates progress, identifies challenges, and provides strategic recommendations to improve creditworthiness.

Delegates from Ghana and Zambia took part in the workshop and shared their experience in dealing with rating agencies particularly in the context of their respective debt restructurings.

Distributed by APO Group on behalf of United Nations Economic Commission for Africa (ECA).