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adcv
@adcv
An interesting discussion about the impact of credit ratings on the ability of African governments to finance themselves and therefore unlock rate-limiters to growth https://open.substack.com/pub/kenopalo/p/is-there-an-africa-penalty-in-sovereign
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adcv
@adcv
The argument is that credit rating agencies (CRAs) penalize African governments excessively: 1. Ideologically opposed to government spending 2. Lack of knowledge 3. Pro-cyclicality 4. High structural financing cost perpetuates likelihood of defaults
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adcv
@adcv
It's not totally unreasonable to be ideologically opposed to government spending when the track record for many African governments is for misallocation, rather than developmental and suitable investments. Indeed, paying for CRAs does not seem to be a particularly good investment for many of the penalized governments
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adcv
@adcv
However, it also seems reasonable to believe there is a structural misunderstanding about the region, which could raise the 'base borrowing cost' for all countries, regardless of the suitability to their particular situations.
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adcv
@adcv
The counterpoint from CRAs is that they in fact as biased in favor of positive ratings: "22% of B ratings issued 2010-2023 defaulted within five years. Global long-term avg stand at only 16%. At Moody’s, default ratios look similar at 30% for SSAs and 15% for global average"
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adcv
@adcv
Opalo concludes: "Clarity from governments would make it easier to develop knowledge and calibrate models. CRAs should improve regional presence and country-specific knowledge, if only to make their models and processes more legible (and therefore influential) among African policymakers and private sector actors"
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