Experts Urge African Regulators To Oversee Credit Rating Agency Activities.

According to a report by experts, Africa should create regulatory frameworks to oversee international credit rating agencies (CRAs) to prevent inaccurate ratings that deter investment on the continent.

“In order to ensure proper business behaviour and enforcement, African authorities must build regulatory systems to oversee the activity of foreign CRAs operating within their various jurisdictions. According to African experts in a paper titled African Sovereign Credit Review Mid-Year Outlook, authorities must ensure accountability for incorrect rating judgements given in Africa.

Investment in Africa is affected by low ratings

Despite optimistic economic forecasts, Sovereign Credit ratings in Africa are declining, according to a joint research by the Economic Commission for Africa (ECA) and the African Peer Review Mechanism (APRM).

An impartial evaluation is a sovereign credit rating.

However, Nigeria and Kenya have challenged Moody’s downgrades to their credit ratings, claiming that the rating agencies did not comprehend the domestic environment and that their fiscal condition and debt were not as terrible as thought in Moody’s evaluation.

Additionally, Moody’s and Fitch downgraded Egypt, which increased its borrowing costs and caused it to issue a sovereign bond with a yield of above 10%. At $37.5 billion, Egypt’s outstanding government bond value presently leads all of Africa.

According to the study, difficulties were encountered during the review period, including mistakes in the publication of ratings and opinions and the fact that experts were based outside of Africa in order to avoid paying taxes and complying with regulations.

The experts also discovered impromptu ratings and announcements that did not adhere to a rating schedule, a herding behaviour among the rating agencies to copy the acts of other rating agencies, and an increase in the workload of rating analysts.

Raising Africa’s low rankings.

According to the research, all of these lead to violations of applicable surveillance policies and procedures. It also urges CRAs to admit institutional flaws and hire more analysts in Africa to deal with problems brought on by foreign-based evaluations.

The research concluded that “effective regulation should ensure that rating agencies remain independent, maintaining the integrity and quality of the rating process,” and that “solution to these challenges lies in effective regulation and eliminating reliance on credit rating opinions.”

Source: ECA