Les cotes de crédit des pays africains : des outils essentiels pour lever efficacement des fonds sur les marchés financiers internationaux
Rédigé par Aristide Ahouassou
Cost and lack of appreciation of the benefits of ratings and the financial discipline that a credit rating brings are some of the reasons why some African countries are reluctant to pursue obtaining credit ratings. On the other hand, some African countries have received HIPC (Heavily Indebted Poor Country) debt relief and have implemented credible reforms. However, they recognize that reliance on grants and aid resources alone is not sufficient to finance their huge financing needs to improve infrastructure and also to implement poverty reduction programs. As a result, these countries may seek credit ratings to help them unlock funding from the international and domestic markets to finance their development needs.
“Uganda and Rwanda are tangible examples where implementation of important reforms over the years have improved their macroeconomic performance, debt sustainability levels, business environment and their financial prospects, forming the basis of their ratings by some international rating agencies. Obtaining a rating will facilitate access to international markets to unlock funding for financing the huge development needs of African countries. But access to the markets must be undertaken in a prudent and responsible way...” This is the view of Kodeidja Diallo, AfDB’s Financial and Risk Management Department Director.
The benefits of a credit rating which includes support for the private sector to gain access to the global market, attraction of Foreign Direct Investment, greater public sector transparency and the development of deeper local capital markets - far outweigh the costs of obtaining the rating.
Uganda has been rated by Standard and Poor’s and Fitch with B+ and B/positive respectively. This means that Uganda has the fourth-highest non-investment grade rating in recognition of the huge economic strides the country has made over the decades, as well as the prospects that the discovery of oil brings to the country. “This gives the country a positive outlook,” AfDB’s Risk Manager stressed. Rwanda is also currently rated by Fitch at “B” with a stable outlook. The rating was upgraded in 2010 to reflect, among others, the impressive reforms implemented by the government to improve macro-economic performance and render the business environment more conducive to investors.
Interview: Kodeidja Diallo, AfDB’s Financial and Risk Management Department Director.
Question 1: Why is it important for African countries to get a rating from agencies like Standard & Poors, Fitch and Moody’s?
Response: Most African countries have gone through HIPC debt relief and have implemented credible reforms. They have realized that reliance on grants and aid resources alone will not be sufficient to finance their huge financing needs to improve their infrastructure and also to implement poverty reduction programs. As a result, they may seek credit ratings to help them unlock funding from the international and domestic market to finance their development needs. In addition, Rating allows countries to receive the appropriate cost of funding compared with a situation where no external rating is provided. Other reasons include: attracting Foreign Direct Investment (FDI) and foreign investors; supporting private sector access to the global capital market; supporting greater public-sector transparency and fostering deeper local capital markets.
Question 2: Why is it so hard for African countries to get a rating?
Response: Cost and lack of understanding of the benefits of rating are the main reasons. Getting rated also requires the provision of a lot of financial and economic disclosures and some African Countries may not have the capacity to do this and hence may not be prepared for the market discipline that getting rated demands. In the past, it was the UNDP that played a catalytic role in explaining the potential benefits of ratings to interested governments in Africa. They provided financial and technical support for those requesting international ratings. This program ended some years ago and no international outfit was undertaken to assist the African Countries that cannot afford the cost of rating. Moreover, some African countries fear that when they subject their countries to rating they will receive less than favorable rating which could deter some investors who would otherwise come to their countries.
Question 3: What is the benefit of this rating for African people?
Response: Apart from the benefits listed above: fostering deeper local capital markets, attracting FDI and others, rating also add credibility to the reforms that most of the African Countries have undertaken over three decades. Countries like Gabon got rated in 2007 to help them issue international bond and used the proceeds of USD 1 billion to repay the outstanding balance of its official Paris Club debt. Hence rating can be used to generate funds to meet debt obligations.
Question 4: How is a rating being awarded, what indicators within an African country are used to award a rating?
Response: Generally the rating process starts from a formal rating request from the country to be rated to the final rating issued (see graph below). It takes around 6 to 8 week from receipt of initial information. Most international Rating Agencies, Standard and Poor, Fitch, Moodys etc., use alphabets to indicate the ratings that they assign to countries. For Standard and Poor this ranges from AAA –which is the highest rating, implying extremely strong capacity of the country to meet financial commitments to BB+ which is the highest speculative grade. The last grade is ‘D” which signals that the country is in payment default. Indicators used include: (i) Economic factors-- income and economic structure, economic growth outlook, fiscal policy, monetary policy; (ii) Debt factors-- public debt in local currency, contingent liabilities, external liquidity, private sector external debts , external debts in foreign currency; and (iii) Socio-Political factors –Political stability of the country, stability of political institutions and population.
Question 5: For countries like Rwanda / Uganda, is a credit rating the way to economic strength?
Response: Ratings does not only indicate the economic strength of a country but it indicates to the outside World the ability and willingness of a country to meet its debt obligations. The credible reforms that Uganda and Rwanda have implemented over the years have improved their macroeconomic performance, debt sustainability levels, business environment and their financial prospects. These are positive signals that the market looks for and rating agencies factor these in the rating of the country. Uganda has been rated by Standard and Poor and Fitch with B+ and B/positive respectively. This means that Uganda has the fourth-highest non-investment grade rating in recognition of the huge economic strides the country has taken over the decades and the prospects the discovery of oil brings to the country gives the country a positive outlook.
Rwanda is actually rated by Fitch at “B” with a stable outlook. The rating was upgraded in 2010 to reflect among other things the impressive reform process implemented by the government to render the business environment friendlier to investors.