About two years after former minister of Finance Felix Mlusu announced plans to have a sovereign credit rating for Malawi, the process is yet to be completed, Times Business has established.
The development has raised questions over the country’s credit worthiness.
Treasury spokesperson Taurai Banda confirmed the delay in the process of hiring a credit rating agency for Malawi in an interview on Saturday.
“Government initiated the process of acquiring a sovereign credit rating. However, the effects of Covid delayed the exercise,” Banda said.
A sovereign credit rating is an independent assessment of the credit worthiness of a country or sovereign entity.
Standard & Poor’s, Moody’s, and Fitch Ratings are the three most influential agencies. Other well-known credit rating agencies include China Chengxin International Credit Rating Company, Dagong Global Credit Rating, DBRS and Japan Credit Rating Agency (JCR).
Sovereign credit ratings can give investors insights into the level of risk associated with investing in the debt of a particular country, including any political risk.
At the request of the country, a credit rating agency will evaluate its economic and political environment to assign it a rating.
Obtaining a good sovereign credit rating is usually essential for developing countries that want access to funding in international bond markets.
Debt market experts say the lack of sovereign credit rating hurts both government and private sector operators as they get credit at a higher premium than those with a credit rating.
The international lenders are usually unsure of the ability of a country or private players to pay back the credit, hence charging a higher risk premium.
In an interview Wednesday, Centre for Research and Consultancy Director Milward Tobias said having a credit rating helps countries access credit at a relatively reasonable cost than where a country is not rated.
Tobias said it is therefore imperative for Malawi to move with speed in aquiring a credit rating for the country.
Speaking when he presented the 2020-21, Mlusu admitted that Malawi had a huge infrastructure deficit that requires recourse to international financial markets.
Mlusu said Malawi’s access to these markets is limited by its lack of sovereign credit rating.