African nations downgrade their views on aggressive rankings companies | Africa Information
The African Union panel criticizes rating agencies for lowering the debt ratings of poor nations during the pandemic, saying it makes it difficult for them to raise funds.
An African Union review body criticized rating companies for aggressive downgrades of countries on the continent during the coronavirus pandemic.
The African Peer Review Mechanism – an AU company – published its first report on the review of the creditworthiness of states on Thursday in cooperation with the African Development Bank and the United Nations Economic Commission for Africa. It found that 11 countries were downgraded in the first half of 2020 and 12 had changed their outlook to negative, meaning their assessments were in danger of being scaled back.
“The main impact was that interest rates more than doubled, forcing the majority of countries to abandon their plans as they were being priced out of the global capital market,” said Eddy Maloka, the panel’s chief executive officer, in a virtual briefing. “This made it more difficult for countries to mobilize resources to support the policy response to Covid-19 as investors became more risk averse.”
The worst hit country was Zambia, the report shows. The copper producer is trying to convince bondholders to accept a debt service vacation and skipped a coupon payment this month. This moves him closer to becoming the first African nation to default on payments since the outbreak of the pandemic. This led S&P Global Ratings to downgrade the country’s debt rating to a selective default for the third time this year.
African leaders, including Senegalese President Macky Sall, have complained in the past that Western prejudice is wrongly keeping borrowing costs high on the continent.
“Evidence from past crises shows that aggressive downgrades at times when economies are already strained create procyclical effects that exacerbate the effects of the crises,” the report said. “Covid-19 downgrades could have contributed to worsening macro fundamentals as investors immediately increased borrowing and capital withdrawal costs.”