The African Peer Review Mechanism (APRM), an autonomous entity of the African Union (AU) that supports African countries in the area of credit ratings, has urged Moody’s Investors Service to review an appeal by the Ghanaian government against the rating company’s downgrade of the West African nation’s debt.

According to the APRM, the downgrade of Ghana’s debt is a major rating decision that threatens debt sustainability of the country and should be treated with seriousness.

“Moody’s should review the appeal by the Government of Ghana against an inaccurate credit downgrade, as provided in the agency’s own Procedures and Methodologies Used to Determine Credit Ratings. Moody’s should ensure sufficient analyst presence in Ghana through field visits to fully understand and evaluate Ghana’s economic and political environment”.
APRM

Ghana’s Finance Ministry on Sunday, February 6, 2022 criticized Moody’s decision to lower its rating further into junk status and said the company used incomplete data as Moody’s cut its assessment of the nation’s long-term debt one step to Caa1 from B3 on February 4, 2022.

The African Peer Review Mechanism stated in a statement that it supports and corroborates the observations made by the Government of Ghana in its statement which highlights significant fundamentals that contradict the downgrade action by Moody’s.

Other deficiencies in the rating

In addition to the technical inaccuracies in Moody’s assessment highlighted by the Government of Ghana in its statement, the APRM presented other observations that further substantiates the deficiencies in the rating.

The APRM noted that Ghana is one of the major economies in Africa and the second-largest in West Africa, as such, assigning one primary analyst to assess Ghana significantly enhances the probability of negative analyst biases.

“Taking such a major rating decision that threatens debt sustainability of the country should be treated with seriousness. Moody’s have failed to do that by appointing a primary analyst a few days before the rating decisions. Additionally, the primary analyst is based outside the country and has never visited Ghana in the period of assessment”.
APRM

It also noted that rejecting the appeal by the Government of Ghana on the omissions and inaccuracies of key material information driving Moody’s decision and proceeding to issue the rating is an evidence of the “unregulated and irresponsible use of power by international credit rating agencies. They are both ‘the player and referee in Africa’”.

Given the nature of ratings and the influence of rating agencies, the inaccurate rating downgrade by Moody’s, according to the APRM, will discount the strength of fundamentals in Ghana, frustrating the government’s efforts in the ongoing fiscal consolidation.

APRM’s recommendations

Based on the factors outlined, the APRM recommended that Moody’s analyst should not make haste rating decisions that may be complicated to correct, at the expense of government’s creditworthiness.

“The Government of Ghana must enact legislation to enhance supervision and regulation of international rating agencies. Enhance the regulatory and supervisory powers of the Ghana Securities and Exchange Commission (SEC) to be at par with international requirements and to be in line with the G20 requirement of regulated and accountable credit rating agencies at a global level”.
APRM

On February 4, 2022, Moody’s issued a rating downgrade of the Government of Ghana’s long-term foreign currency sovereign rating from B3 to Caa1, with a stable outlook. The new rating assigned indicates that the Government of Ghana is subject to a very high risk of failure to settle the sovereign bonds or coupon payment when they are due.

Moody’s downgrade of Ghana places its rating one notch below that of Fitch issued on 14^th January 2022 and that of S&P Global, which currently places the country on B- with a negative and stable outlook, respectively.

The Government of Ghana has expressed reservations on the rating and this is the second time that Ghana is raising concerns on the inaccuracies and haste rating decisions by rating agencies. The African Peer Review Mechanism (APRM) stated that Moody’s should have accordingly paid due attention to the issues raised.

The African Peer Review Mechanism (APRM), an autonomous entity of the African Union (AU), supports African countries in the area of credit ratings, undertakes routine reviews of rating outcomes assigned by international credit ratings agencies on African countries. The mechanism provides this support through research, member states peer-learning, periodic reviews of ratings, advisory services and technical support missions.