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African countries are taking steps to gain greater control over how their financial risks are assessed with the launch of a new continental credit rating agency by the African Union.
The Africa Credit Rating Agency is expected to assess the financial standing of governments, financial institutions and businesses across the continent, providing investors with another source of information beyond the established global rating firms.
The creation of the agency comes amid concerns over the financial pressure faced by African economies, many of which spend a significant portion of their revenues servicing debt and often borrow at higher rates than countries in other regions.
Supporters of the initiative believe a rating system developed with a stronger understanding of Africa’s economic environment could provide a more balanced picture of investment risks on the continent.
The agency will also assess local-currency borrowing and other financial instruments, potentially providing ratings for entities that have previously had limited access to international credit-rating services.
Officials, however, say the new institution must maintain professional independence to gain the confidence of investors. Its role will be to provide credible assessments rather than automatically produce favourable ratings for African borrowers.
The AU expects the initiative to contribute to deeper capital markets, attract investment and improve the continent’s ability to secure financing on more sustainable terms.
