By Amaka Abayomi
The Director, Financial and Risk Management Department of the African Development Bank (AfDB) Mrs. Kodeidja Diallo, has said that African countries can foster deeper local capital markets and attract foreign direct investments (FDI) if they can open up to international credit rating agencies.
Highlighting the importance and benefits of African countries getting a rating from agencies like Standard & Poors, Fitch and Moody’s, Diallo said the benefits of a credit rating which includes support for the private sector to gain access to the global market; attraction of FDI; greater public sector transparency; and the development of deeper local capital markets, far outweigh the costs of obtaining the rating.
“Rating allows countries to receive appropriate cost of funding compared with a situation where no external rating is provided. It attracts FDI and foreign investors, supports private sector access to the global capital market, supports greater public-sector transparency and fosters deeper local capital markets.
“Most African countries have gone through Heavily Indebted Poor Country (HIPC) debt relief and have implemented credible reforms after realizing 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.
“Apart from attracting FDI and others, rating also adds credibility to the reforms that most countries have undertaken over three decades and can be used to generate funds to meet debt obligations.”
She listed cost, financial indiscipline, unwillingness to disclose detailed financial and economic data and lack of appreciation of the benefits of credit rating as some of the reasons why some African countries are reluctant to pursue obtaining credit ratings.