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The desire to demonstrate a track record of good governance is driving growing demand for sovereign credit ratings in Africa, says a report issued on September 28 by Standard & Poor’s Ratings Services, in cooperation with the United Nations Development Programme (UNDP).

Underlining this trend, the second edition of the Standard & Poor’s “Sovereign Ratings in Africa “report contains analyses of two new rated sovereigns: the Republics of Madagascar (B/Stable/B) and Mozambique (B/Positive/B). These countries have both seen sovereign ratings assigned by Standard & Poor’s since the previous edition was published in June 2004.

“As African countries turn increasingly to the private sector to find the resources to achieve their poverty reduction targets, we expect to assign ratings to several other sovereign governments in the region in the year ahead,” says Standard & Poor’s credit analyst Konrad Reuss.

“The key drivers behind these rating requests are that African governments are seeking to demonstrate greater public-sector financial transparency, attract foreign direct investment, provide access for private sector borrowers to global financial markets, and develop deeper domestic capital markets, rather than the wish to issue cross-border debt,” Reuss explains.

Reinforcing the impression of improving credit conditions, David Beers, managing director and global practice leader of Standard & Poor’s sovereign ratings, examines in a research article the downward trend in sovereign defaults by African governments on bonds and bank loans.
“Looking ahead to 2005, we expect the number of African sovereign borrowers in default, and the value of defaulted debt, to fall further,” comments Beers.

The report also includes a discussion of the West African Economic and Monetary Union (Waemu) and the Central African Economic and Monetary Community (Cemac), which have had some success in prompting economic reforms and fiscal discipline among their member states through collective surveillance.

As in the first edition, the report incorporates summary analyses of all the 13 sovereigns in Africa that have been assigned ratings by Standard & Poor’s, and of the African Development Bank (AAA/Stable/A-1+), the continent’s flagship multilateral development finance institution.