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Impact of Credit Rating Agencies on Development Finance in Africa. 14 April 2023. Ntsetselelo Dlamini, Intern, Skidmore College.

 
In the backdrop of the IMF/World Bank Spring Meetings, the Brookings Africa Growth Initiative (AGI), AfriCatalyst and the UNDP’s Africa Bureau hosted a high level panel discussion about the impact of credit ratings on African development. Panelists included Ghana’s Minister of Finance Ofori-Atta, Senegal’s Minister of Economic Planning Oulimata Sarr and the President of the Eastern and Southern Africa Trade and Development Bank Admassu Tadesse.

At the IMF/World Bank Meeting in 2017, Economist and Creative Investment Research CEO William Michael Cunningham raised concerns about discrimination and misadjusted risk attitudes towards the continent. It is encouraging to see that this conversation is finally receiving the attention it deserves. The panelists agreed that there is a need for reform in credit rating agencies' relationship with African sovereign states. They also highlighted the severe consequences of downgrades in credit ratings on African countries, hindering much-needed development. 

Of course the meeting would not have been complete without an overview of some potential solutions. Seeking non-western sources of finance, establishing Africa-based credit rating agencies and encouraging central banks to hold a certain fraction of reserves within the continent were some answers that stood out to me.

As a young African student of Economics, I was particularly intrigued by the prospect of establishing Africa based credit rating agencies. Such agencies could provide a more accurate reflection of the true risk that sovereign African states face. However, they will need to be completely transparent to maintain credibility and solve the problem at hand. Transparency in the assumptions made through the Big Three (Moody's, Standard and Poor's and Fitch) credit rating agencies' methodology leaves much to be desired, making this an important issue that deserves attention.

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