G20 Considers Mechanisms to Hold Credit Ratings Agencies Accountable amid African Debt concerns
WASHINGTON – The G20 is exploring ways to increase accountability for sovereign credit ratings agencies, spurred by concerns that inaccurate assessments inflate borrowing costs for emerging economies, especially in Africa. The discussion gained momentum at a recent G20 event in Washington, where South African Reserve Bank governor Lesetja Kganyago advocated for a collective mechanism allowing emerging economies to challenge ratings based on flawed data.
The debate centers on the important impact credit ratings have on a nation’s access to capital and the perception of risk.Emerging economies argue that current methodologies employed by established agencies often fail to accurately reflect their economic realities, leading to unfairly downgraded ratings and increased debt burdens. A key point of contention is the accuracy of projections used in downgrades, with Kganyago citing South Africa as a case study.
“If you were to look at South Africa now, and you look at the reports of the rating agencies when they downgraded South Africa in 2017 and 2020, their trajectory was that debt-to-GDP in South Africa would reach 94%. In the case of one rating agency, it saeid that we might actually reach 100. Eight years later, we are at 76%. So, they were wrong. So, you need to be able to engage with them on that basis,” Kganyago stated. He emphasized the strength emerging economies would have acting collectively to scrutinize agency methodologies and data.
The call for greater accountability comes as African nations grapple with escalating debt levels, exacerbated by global economic headwinds and the lingering effects of the COVID-19 pandemic. While proposals for a dedicated African credit ratings agency have surfaced in recent years, concerns about establishing credibility and potential conflicts with existing agencies have hindered progress.
Rosa Whitaker, a US businesswoman and former assistant US trade representative for Africa under Presidents Clinton and Bush, highlighted the mismatch between established agency criteria and African economic contexts. “The conditions of established ratings agencies were not designed with Africa’s economic realities in mind,” she told Business times.
The G20 discussion aims to identify potential solutions, ranging from enhanced data clarity and methodological reviews to establishing a formal dispute resolution process. the goal is to ensure that credit ratings accurately reflect economic fundamentals and do not contribute to a cycle of debt distress for vulnerable nations.
