Midrand, South Africa – Monday 27 January 2025
In line with the African Union Assembly of Heads of State and Government Decision [Assembly/AU/Dec.631(XXVII)] and Article 6(g) of the African Peer Review Mechanism (APRM) Statute (2020), which mandates the APRM to support African countries on credit ratings, the APRM undertakes routine analyses of rating actions and commentaries assigned by international credit ratings agencies on African countries.
The APRM notes with concern the errors in recent credit rating actions by Moody’s. On 24 January 2025, Moody’s changed Kenya’s outlook from ‘negative’ to ‘positive’ and reaffirmed its Caa1 rating, citing a potential ease in liquidity risks and improving debt affordability over time. It is rare for a credit rating agency to move from ‘negative’ to ‘positive’, skipping a ‘stable’ outlook. The change is an admission, in remedy, that a negative outlook was an incorrect rating. This rating action was a reversal of Moody’s premature rating action on 08 July 2024 which was largely driven by protests in Kenya over the proposed Finance Bill. The July 2024 rating downgrade by Moody’s was speculative, as midterm review data on the Appropriation Bill, the spending allocations, the final budget, the finance bill, and the new cabinet had not yet been released when the rating agency made its announcement. This is not the first time Moody’s has acted prematurely and erred in its analysis.
In January 2023 Moody's also erred by downgrading Nigeria from ‘B3’ to ‘Caa1’ citing that the government's fiscal and debt position was expected to deteriorate further under the new administration. The Federal Government of Nigeria challenged the inaccuracy of that rating action on the basis that the rating agency lacked an understanding of the country’s domestic environment. Moody’s later reversed Nigeria’s outlook from ‘stable’ to ‘positive’ in December 2023, citing positive economic policy developments in the country. However, relatively similar factors were present when Moody’s downgraded Nigeria, and the rating reversal in the short-term was evidence that the rating agency had acted prematurely and erred.
The APRM views such rating actions as irresponsible and detrimental, leading to unnecessary costs to governments, triggering Eurobond sell-offs, and sustaining a negative sentiment on African instruments. Moody’s is strongly encouraged to be diligent and wait for the complete term review data before taking rating actions rather than taking speculative and premature rating actions based on missing or incomplete information.
APRM CREDIT RATING RESEACH & ADVISORY
For inquiries contact:
Dr McBride Nkhalamba - Ag. Director of Governance & Specialised Reporting;
Dr Misheck Mutize - Lead Expert on Credit Rating Agencies; misheck.mutize@aprm-au.org
Ms. Ejigayhu Tefera – Researcher; ejigayhu.tefera@aprm-au.org
