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September 19, 2023 3:56 PM IST

African Union to launch own credit ratings agency

African Union | credits rating agency | african union credits rating

The African Union plans to launch a new African credit rating agency next year in response to its concerns about what it views as unfair ratings given to African countries.

The agency will generate its own evaluation of lending risks associated with African countries. It will operate within the continent, self-funding its operations, and aims to provide additional context for investors when making decisions about purchasing African bonds or extending private loans to countries, as stated by the African Union.

The African Union and its member nations’ leaders assert that the “big three” ratings agencies – Moody’s, Fitch, and S&P Global Ratings – do not fairly assess the lending risks associated with African countries. They also allege that these agencies are quicker to downgrade African countries, especially during crises such as the global health crisis.

A study by the UN earlier had shown that subjective biases in credit ratings had cost African countries a combined US$74.5 billion. This was through funding opportunities lost and excess interest paid on public debt.

In essence, credit ratings serve to assess the likelihood of a borrower defaulting and influence the terms under which banks and other entities extend loans to them. Moody’s, Fitch, and S&P Global Ratings have consistently denied any bias in their assessments and maintain that their rating methodologies remain consistent worldwide.

As of now, there has been no immediate response from Moody’s, Fitch, and S&P Global Ratings to requests for comments on this matter.

(Inputs from Reuters)

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