08 February 2022 – The African Peer Review Mechanism (APRM), an autonomous entity of the African Union (AU) that supports African countries in the area of credit ratings, undertakes routine reviews of rating outcomes assigned by international credit ratings agencies on African countries. The mechanism provides this support through research, member states peer-learning, periodic reviews of ratings, advisory services and technical support missions.On the 4th of February 2022, the APRM noted that Moody’s issued a rating downgrade of the Government of Ghana’s long-term foreign currency sovereign rating from B3 to Caa1, with a stable outlook. The new rating assigned indicates that the Government of Ghana is subject to a very high risk of failure to settle the sovereign bonds or coupon payment when they are due. Moody’s downgrade of Ghana places its rating one notch below that of Fitch issued on 14 January 2022 and that of S&P Global issued on 11 September 2020, which currently places the country on B- with a negative and stable outlook, respectively.The Government of Ghana has expressed reservations on the rating and this is the second time that Ghana is raising concerns on the inaccuracies and haste rating decisions by rating agencies. Moody’s should have accordingly paid due attention to the issues raised. The APRM supports and corroborates the observations made by the Government of Ghana in its statement which highlights significant fundamentals that contradict the downgrade action by Moody’s. In addition to the technical inaccuracies in Moody’s assessment highlighted by the Government of Ghana in its statement, the APRM presents the following observations in substantiating the deficiencies in the rating;1) Ghana is one of the major economies in African and the second-largest in West Africa, assigning one primary analyst to assess Ghana significantly enhances the probability of negative analyst biases. Taking such a major rating decision that threatens debt sustainability of the country should be treated with seriousness. Moody’s have failed to do that by appointing a primary analyst a few days before the rating decisions. Additionally, the primary analyst is based outside the country and has never visited Ghana in the period of assessment.
2) Rejecting the appeal by the Government of Ghana on the omissions and inaccuracies of key material information driving Moody’s decision and proceeding to issue the rating is evident of the unregulated and irresponsible use of power by international credit rating agencies. They are both ‘the player and referee in Africa’.
3) Given the nature of ratings and the influence of rating agencies, the inaccurate rating downgrade by Moody’s will discount the strength of fundamentals in Ghana, frustrating the government’s efforts in the ongoing fiscal consolidation.
Based on these factors, the APRM makes the following recommendations;
a) Moody’s should review the appeal by the Government of Ghana against an inaccurate credit downgrade, as provided in the agency’s own Procedures and Methodologies Used to Determine Credit Ratings.
b) Moody’s should ensure sufficient analyst presence in Ghana through field visits to fully understand and evaluate Ghana’s economic and political environment.
c) Moody’s analyst should not make haste rating decisions that may be complicated to correct, at the expense of government’s creditworthiness.
d) The Government of Ghana must enact legislation to enhance supervision and regulation of international rating agencies.
e) Enhance the regulatory and supervisory powers of the Ghana Securities and Exchange Commission (SEC) to be at par with international requirements and to be in line with the G20 requirement of regulated and accountable credit rating agencies at a global level.