Rating agencies could derail economic recovery by Jayati Ghosh


The world’s three major private rating agencies are using their power to prevent low-income countries from restructuring their debts and stimulating their economies. The case for an independent public rating agency has never been stronger.

NEW DELHI – On March 10, ratings agency Moody’s placed Ethiopia on watch for downgrade. The problem is not the violence and repression in Ethiopia’s beleaguered Tigray region. On the contrary, Moody’s concluded that the Ethiopian government’s commitment to engage with private creditors, as part of the G20 Common Framework for Debt Treatment Beyond the Debt Service Suspension Initiative , increases the risk that these creditors will suffer losses. For this, the country must apparently be punished.

While the DSSI aims to provide immediate relief to low-income countries during the pandemic, the Common Framework was designed to help struggling sovereign states reschedule or reduce their commitments. For many countries, it offers the best chance of making their debt burden bearable. But today, the threat of a ratings downgrade is clouding the outlook for these countries.

This highlights a systemic problem in international finance: the extraordinary – and undeserved – power wielded by a few private credit rating agencies. Just three – Moody’s, S&P Global Ratings and Fitch Ratings – control more than 94% of outstanding credit ratings. And there are significant cross-shareholdings between them.

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