Honorary Vice President of IMANI Africa, Bright Simons has revealed that Ghana’s credit ratings from international ratings agencies like Moody’s, Fitch and S&P were solicited by the government.
According to him, it is not as if the rating agencies decide to pick on African countries by rating their creditworthiness at random, as it may seem, instead, these countries solicit the services of rating agencies in order to attract investors.
Speaking on JoyNews’ PM Express, Tuesday, Bright Simons explained the process leading to Ghana’s ratings by the credit agencies.
“This was a solicited rating. This wasn’t an unsolicited rating. It’s not like Moody’s was there and decided to rate Ghana and cause problems for us. We went to Moody’s, paid money and asked Moody’s to give us a rating for specific securities that we had sold,” he said.
He added that subscribing to credit rating agencies was a sound idea as it helps government convince investors to invest in the country.
“One of the interesting things about the current debt market is when you take a normal loan like a loan to build a dam, it’s often hard for the person that’s given that loan to sell it off to somebody else. Often they’ll need another counterparty to securitise or something like that.
“But, for these types of loans that we go out to borrow through the bonds, when you buy them you can sell them on the secondary market so there are a lot of ways in which for that reason you can use other metrics instead of the credit ratings to determine whether or not if a country is creditworthy because their bonds are traded in liquid markets,” he said.
He was quick to warn that considering the current tangent both the government of Ghana and the African Union were on, it could create the impression that the ratings by the credit agencies were unsolicited and only meant to sabotage the country’s economy.
“However, it helps when a government itself is trying to determine where they are to get a rating because it helps investors and they’ll normally be the ones that pay for it. And most other people will then consume it for free.
“So we should be careful we don’t make it look like Moody’s was roaming around looking for some African country to bully and they went and issued some rating,” he said.
Bright Simons further explained that the reason for the variations in the reports of the three agencies is that all three use their unique metric to measure the creditworthiness of a country.
He stated that Moody’s for instance often looked at a country’s ability to pay back their loans on time.
“Other things is yes some of the ratings could differ, and we’ve seen some variation now among the three rating agency as far as Ghana is concerned, perhaps a notch different variation among them and that is because sometimes the ratings are not actually capturing the same depth.
“So if you take the most critical factor, the risk of default, you’d find out that Moody’s does not only consider the probability of default they also consider whether or not if the default happens if we don’t pay how severe will that be from a systemic risk point of view or from other factorial points that are critical for investors that are looking at that analysis,” he explained.
The government of Ghana is currently challenging its credit worthiness ratings by the international ratings agencies.
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