Ghana: GSE-established credit rating agency to be ready by mid-2022
Reports indicate that the Ghana Stock Exchange (GSE) is ready to set up credit rating agencies in the country with its first credit rating agency to be established by mid-2022.
The credit rating agencies per the explanations given by the Managing Director of the GSE, Ekow Afedzie, are expected to rate the issuance of bonds in the country in order to bring some confidence and comfort to investors.
“It is important because when it comes to the corporate image the investor will want to know about the rating of that company before taking a decision. In other words, whatever the credit rating agency will say will guide the investor in the investments that he will be making. So, for the Exchange, we are just looking at the bonds and how we can have credit rating agencies in Ghana to assist in developing the market,” he stated.
Adding that, “The Security and Exchange Commission (SEC) has come up with guidelines for licensing credit rating agencies. I understand one of them has been licensed, there is another one that is in the pipeline that is being developed by a group.”
For his part, Mr Augustine Simons who is Head of Ghana Fixed Income Market revealed that suggestions have been made for the GSE, the National Pensions Regulatory Authority (NPRA) and the State Insurance Commission (SIC) to have holdings in these agencies.
“By the middle of this year we should have the credit rating agencies, the entity established, they should start operation, have an office that they are going to operate. It was suggested that the NPRA, NIC and the GSE will take some holdings and shares into this.”
This development comes at a time President Nana Addo Dankwa Akufo-Addo has tackled international credit rating agencies during the African Union Summit in Ethiopia.
Mr Akufo-Addo indicated that the work of the rating agencies has affected the cost and access to capital markets for African countries, and has, during this COVID period, resulted in the downgrading of many African countries, exacerbating even more their funding challenges
He called on Member States of the African Union to work collectively to reform the global financial architecture, as well as build and strengthen the Union’s financial institutions.
Delivering his second report to the Assembly, on Sunday, 6th February 2022, in his capacity as AU Champion for Financial Institutions, President Akufo-Addo noted that the AU is currently engaged in the process of establishing four (4) financial institutions (AUFIs), namely the African Central Bank (ACB), the African Investment Bank (AIB), the African Monetary Fund (AMF), and the Pan African Stock Exchange (PASE).
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According to the President, “the major challenges towards the establishment of the AUFIs include the slow rate of signature and ratification of the legal instruments, and the limited capacity of Member States to finance the establishment of the AUFIs. Regrettably, none of the AUFIs has reached the minimum number of ratifications required for the enabling legal instruments to enter into force, and, thereby, facilitate their substantive establishment.”
This, he explained, is detrimental to the operationalisation of the African Monetary Institute, which is the first step towards the establishment of the African Central Bank.
President Akufo-Addo, thus, presented a number of recommendations to the AU Assembly for its adoption and endorsement, which, he said, “would be critical towards the establishment of the AUFIs”. They have been captured in the Draft Assembly Decision that will be submitted to Your Excellencies for consideration and adoption.
“We value this commitment to additional resources, of which our continent is in dire need. It is unfortunate, however, that the only proposal that has been put on the table by the European countries so far is to re-channel these SDRs through only one institution, the International Monetary Fund (IMF),” he said.
President Akufo-Addo continued, “The IMF should not be the sole beneficiary of such rechanneling. We believe that our own continental institutions, such as the African Development Bank (AFDB) and Afreximbank, should be recipients of the recycling of these SDRs. Our Finance Ministers and the United Nations Economic Commission for Africa (UNECA) have advocated for the use of regional development agencies to be included in this rechanneling.”
He told the Assembly that African Finance Ministers, with UNECA, have consistently championed the allocation of SDRs to capitalize AFDB and AfreximBank, to help establish an African Stability Mechanism, and to initiate a Liquidity Support Facility (LSF).
“We need to guard against the continuing consequential stranglehold of the rating agencies, which has affected the cost and access to capital markets for African countries, and has, during this COVID period, resulted in the downgrading of many African countries, exacerbating even more their funding challenges,” President Akufo-Addo said.
His comments come at a time the Government of Ghana through the Ministry of Finance has said Moody’s downgrade of the local economy to Caa1 smacks of contradiction.
In a statement issued on Sunday February 6 reacting to the downgrade on Friday, February 4, 2022, the Ministry said the government finds it difficult to understand the international credit rating agency’s assertion of the deterioration of Ghana’s institutional strength given Ghana’s reputation as a beacon of democracy in Africa.
Moody’s Investors Service on Friday, February 4, 2022, downgraded the Government of Ghana’s long-term issuer and senior unsecured debt ratings to Caa1 from B3 and changed the outlook to stable from negative.
But the statement by the Ministry of Finance said, “According to Moody’s, the downgrade is due to ‘increasingly difficult task government faces in addressing the intertwined liquidity and debt challenges, pandemic induced revenue underperformance, tight funding conditions on international markets materially decreasing governance and institutional strength and inflexibility in the government budget.”
“[Government] believes that the recent fiscal consolidation measures as announced by the Finance Minister and the 2022 budget which is anchored on debt sustainability and a positive primary balance largely addresses these concerns. we are at odds to understand Moody’s assertion of the deterioration of Ghana’s institutional strength given Ghana’s reputation as a beacon of democracy in Africa.”
“In a clearly contradictory manner, Moody’s justifies the stable outlook despite the downgrade to Caa1 by acknowledging government’s strong track record in delivering effective fiscal polices and the maintenance of a variety of funding sources,” stated the Finance Ministry.
