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Tuesday, March 5, 2024

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African Union To Establish Own Credit Rating Agency

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In order to address the group’s worries that ratings given to countries on the continent are unjust, the African Union aims to establish a new African credit rating agency next year, an official told Reuters.

According to Misheck Mutize, the African Union’s lead expert on country support for rating agencies, the organisation focused on the continent and provide context for the data that investors think about when selecting whether to purchase African bonds or make a private loan to a nation.

While saying that they are aiming for a launch in 2024, “We already have quite a huge interest in the private sector to support the implementation of this.”

The three rating agencies all assert that their ratings are consistent across all continents and deny any bias. S&P’s lead analyst for sovereign ratings, Ravi Bhatia, recently stated that the company uses the same standards across all regions.

In general, credit ratings are made to determine a borrower’s risk of default and to take into account the conditions under which banks and other lenders may extend credit to them. International bonds issued by more than a dozen African nations are now outstanding.

Mutize said, “Our goal has not been to replace the big three…we need them to support access to international capital. Our view has been to widen diversity of opinions. We know the big three follow the opinion of other smaller ratings agencies. They’ve acknowledged that other smaller ratings agencies have got an edge in understanding domestic dynamics.”

According to Mutize, the new agency is an effort to alter the story.

The African Peer Review Mechanism (APRM), a division of the AU established last year to enhance governance throughout the continent, spearheaded the drive to get the AU finance ministers to approve the proposal for the new agency during the summer. In February, the identical resolution is anticipated to be approved by the entire AU executive council.

According to Mutize, the agency would be independently funded by the business sector, with AU oversight. He said it was too early to speculate about which private sector and international organisations will head up the agency because they are working on a pitch book to possible funders and collaborators.

“Investors have been quite positive. They want to see what will be the output of this,” Mutize said. “Any investor will pay attention to anything that brings them information.”

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