Finance Minster calls for urgent reforms in credit rating agencies
The Finance Minister, Ken Ofori-Atta, is calling for urgent improvement in the conduct of international credit rating agencies (CRAs) on African economies.
He noted that doing this was important, given their ownership structure and the consequences that their actions have had on sovereign states, especially in Africa.
“We need to go into emergency mode to reform the global financial architecture,” he stressed.
The Minister disclosed this while delivering his keynote address at a sensitisation meeting on the African Peer Review Mechanism (APRM) support for member states on international CRAs in Accra on Thursday March 17, 2022.
The meeting which was organised by the Ministry of Foreign Affairs and Regional Integration, in collaboration with the APRM, seeks to engage key stakeholders on credit ratings to discuss various challenges the member countries, including Ghana, were facing with the agencies, as well as their impact on corporate governance and reforms to improve competitiveness in the private sector.
The meeting comes at the back of recent ratings by Moody’s, one of the international CRAs, who downgraded Ghana’s long-term issuer and senior unsecured bond ratings to CAA1 from B3 and changed the outlook from negative to stable.
Mr Ofori-Atta emphasized the need for governments in Africa and their peoples to begin speaking one voice to bring about changes in the world economic order that had always placed the continent at a disadvantage on the international market.
He furthered that there was an urgent need for improvement in the global financial architecture to enable the continent access funds on the international market.
This will rebuild the economies and address the issues of poverty and climate change in the midst of the COVID-19 pandemic that has impacted negatively on the economies of the world, especially Africa.
Read: African Union sets plan to establish African-owned Ratings Agency
Mr Ofori-Atta observed that sovereign credit ratings on the continent had been persistently low since 1994 when South Africa received the continent’s first credit rating.
He disclosed that between 1949 and 2021, African countries had been less often upgraded significantly, compared to other regions.
In the case of Standard and Poor’s (S&P) ratings, for example, only 1.1 per cent of African sovereigns rated in the ‘B’ category (which form the majority of rated African sovereigns) were upgraded to BB, Mr Ofori-Atta noted.
Mr Ofori-Atta said some countries had reneged on servicing their debts on the international market, saying Argentina had reneged on its debt on nine occasions.
However, that country issued a 100-year bond in 2017, with a coupon rate of seven per cent, which was oversubscribed.
“Alternatively, take Ghana and Greece, for instance: In 2020, a 29-year, $1-billion Eurobond issued by Ghana had a coupon rate of 8.95 per cent. Essentially, Ghana would pay $89.5 million in coupons per year, which translated to a coupon of $2.6 billion over the lifetime of the bond.
“Greece, on the other hand, issued a 30-year Eurobond for €2.5 billion at a coupon rate of 1.88 per cent,” he said.
That, Mr Ofori-Atta said, meant that despite Greece defaulting on its debt as recently as 2015, it was paying €47 million (or approximately $53.6 million) for its debt.
Based on the above analysis the Finance Minister questioned what exactly the “risk” was that was being built into the models that caused Ghana to pay an additional $35 million per year, compared to Greece, on a 30-year facility.
The meeting was attended by representatives from the Bank of Ghana, the Securities and Exchange Commission, the Ghana Stock Exchange, the Ghana National Chamber of Commerce and Industry, the African Continental Free Trade Area (AfCFTA) Secretariat, among others.
