UNDP to improve transparency of credit ratings methodologies for Africa
The United Nations Development Programme (UNDP) says it will focus on improving transparency of the credit ratings methodologies to lower costs of borrowing in Africa.
Dr Raymond Gilpin, Chief Economist, Africa Bureau, UNDP, New York, said this in his remarks delivered in a webinar at the United Nations University on Friday.
The webinar was tagged “Lowering the Cost of Borrowing in Africa”, UNDP Policy Recommendation.
The economist said the UNDP and its partners would focus on improving transparency of the credit ratings methodologies, so it was clear to the African countries and clearer to investors.
Moreso, he said they would adopt standardised alternative ratings. “This is not to replace the big three credit ratings, because that would not be very wise.” Gilpin said.
The three major credit ratings agencies are: FitchRatings, Moody’s, and Standard & Poor’s. Gilpin said the agencies were acting with inadequate data on African countries to rate them.
According to an analysis by the United Nations Economic Commission for Africa (UNECA), $1.3 trillion dollars will need to be invested in the continent each year to reach the Sustainable Development Goals (SDGs) by 2030.
However, African countries cannot cover these investments with income from trade and grant aid and the continent is estimated to be short of $200 billion dollars each year to achieve the SDGs.
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Furthermore, the major credit rating agencies determine the creditworthiness of African borrowing countries, each of which determines the amount of interest a country pays on its debt and the amount of money that flows into the borrowing country.
Gilpin said most African countries understood how to deal with multilateral institutions, like the International Monetary Fund, but were not aware of how to deal with credit ratings institutions.
He said most of them did not have the technical expertise or understood the process well.
“We want to support them so that they would be able to be better players in this process, and then, in this context, we believe that much more should be done to support African countries before, during and after the ratings agencies,” he said.
The UNDP representative also said the organisation would assist African countries with a data platform that had traditional and non-traditional data sources like the one used by trading economics.
“If we are able to support the African countries, then they will be able to do the analysis, and maybe from domestic and other sources, close certain data gaps.” Gilpin said.
The economist said assisting African countries with data and establishing a group of advisors were the immediate things the UNDP could do for now.
“In that context, lowering the costs of borrowing is a development imperative in Africa,” he said.
