Africa Union flag with other African countries flags. (Courtesy Photo/Shutterstock)
Africa Union flag with other African countries flags. (Courtesy Photo/Shutterstock)

Africa is working on a credit rating to be launched by the end of 2024 to address what it terms unfairness, .

, Rwanda鈥檚 largest daily newspaper, reported on Sunday, April 14, that the proposal for the new agency, the African Credit Rating Agency (ACRA), as outlined by the United Nations Economic Commission for Africa (UNECA) would provide 鈥渂alanced and comprehensive opinions鈥 on African credit instruments. This would then support affordable access to capital and the development of domestic financial markets.

Credit ratings are designed to gauge a borrower鈥檚 risk of default, and factor in the terms on which banks and others will lend to them.

With the backing that comes from the support of the African Union (AU), it is envisaged that the rating agency will have the advantage of understanding the domestic context of Africa, issue more informative and detailed ratings than those issued by the international rating agencies.

鈥淎n Africa Credit Rating Agency is an important step towards intra-continental integration that would enable African governments to access capital and integrate the continent with global financial markets,鈥 said Dr. Misheck Mutize, lead expert on Credit Rating Agencies at the African Union鈥檚 (AU) African Peer Review Mechanism (APRM).

In 2017 the AU made a decision to direct its APRM to provide support to member states in the field of rating agencies.

鈥淭he two main reasons behind this initiative are to provide alternative opinion to the big three, and secondly, to support activities on the local financial markets. The proposed launch is scheduled for December this year,鈥 according to the APRM.

The AU argues that the 鈥渂ig three鈥 rating agencies 鈥 惭辞辞诲测鈥檚, Fitch and S&P Global Ratings 鈥 do not fairly assess the risk of lending to African countries.

They are also quicker to downgrade them during crises such as the COVID-19 pandemic.

Therefore, it is envisaged that the rating agency will secure substantial business in the ratings of domestic instruments that are aligned with the continent鈥檚 goals.

鈥淭here are a lot of instruments that need rating on the local financial markets. The idea is that once there is enough domestic financial market support, countries should be able to borrow in local currencies,鈥 Dr. Mutize explained. 

鈥淚nternational investors should be able to also participate through the domestic financial markets. The agency would be self-funded and private sector driven with AU oversight.鈥

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