October 2020 – The APRM, Fitch and Moody’s held a virtual meeting to discuss the APRM Initiative to Support African countries in the area of Credit Ratings and possible future collaborations with the two rating agencies. The rating agencies expressed interest to collaborate with the APRM to bridge the information gap that exists between rating agencies and African countries.
“There is consensus that information asymmetry has significantly contributed directly and indirectly to a number of rating actions in the recent past especially negative rating actions against African States. This was witnessed from the statements issued by rating agencies and governments following rating actions and decisions. Two particular cases were the responses to G20 debt relief moratorium and the rating actions against stimulus packages”, said APRM Rating Agencies Expert Dr. Misheck Mutize.
APRM informed the two rating firms about the establishment of several mechanisms to support countries which include a Policy Framework to guide the provision of support, Research and Advisory – producing a bi-annual Sovereign Credit Rating Review half year, and establishing the Continental Information sharing platform – workshops for peer learning.
The APRM further invited the two rating agencies to participate on its various platforms of support to engage countries and to be more visible on the continent. It emphasised the importance of two rating firms participation in APRM platforms, which bring together individuals from governments and agencies that are involved in conducting business with rating agencies. Fitch and Moody’s welcomed the invitation to participate in future APRM workshops, acknowledging that it is important for them and for countries in building solid relationships.
“The presence of rating agencies in different environments other than during rating reviews would obviously calm government experts and improve two-way communication channels to avoid the perception that rating agencies are opponents. This will also help significantly in depoliticizing the work of rating agencies”, alluded Moody’s Senior Vice President – Head of Africa, Dr. Douglas Rowlings.
The parties agreed that the collaboration is very crucial especially in addressing the perception that rating organisations are not reachable, which has further been reinforced in different platforms. It was agreed that collaborations would further assist in strengthening the relationship between governments and rating agencies.
Rating agencies are organizations specialized in assessing the credit risk of governments, public and private companies that make use of capital markets for financing. Credit ratings provide a measurement of the ability of borrowing government or firm to honor its obligations in full when they fall due. A rating thus serves as a benchmark for investors to make decisions as they allocate risk associated with their investment decisions and therefore, the amount of interest that they demand from a borrower.
Although the decision to seek a rating is normally made by the governments or the institutions seeking to borrow (issuer of bonds), they must have at least a rating from one of the three dominant international agencies to obtain financing. These are Standard and Poor’s, Moody’s and Fitch.