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  • Saturday, 10 September 2022

Egypt-ICF Emphasizes the Role of Sovereign Ratings, Green Sustainable Bonds and the LSF to Address Debt Distress in Africa

On the third day of the Egypt-International Cooperation Forum (Egypt-ICF) in its second edition, a workshop entitled “Sovereign Ratings, Green/Sustainable Bonds, and the LSF” was organised to foster dialogue between countries and rating agencies, and better inform decisionmakers of the requirements and criteria in the sovereign rating process.

Minister of Economy and Finance in Benin, Romuald Wadagni, noted that the African continent cannot combat climate change alone, and that multilateral banks and international institutions should also shoulder the responsibility to provide more financing. 

Hong Paterson, CFO and COO of the Green Climate Fund, stated that the fund is co-financing projects and works with partners to design, build capacity and provide the necessary technical assistance. 

Patterson also said that developing countries have constraints regarding the green bond market and face constraints in having a supportive credit infrastructure and risk assessment data. 

She also pointed out that the fund is working to support emerging economies, adding that it raised their financing to $3.3 billion, and is working to establish a fund that will serve more than six countries, aiming to receive $600 billion in green bonds to reduce risk and fund bio-businesses.

In the same vein, Elisa Parisi-Capone, Vice President of Moody's Analytics, said that the institution focuses on a number of criteria for their ratings, foremost of which are the environment, social order, and transparency, noting that these three factors represent strategic aspects for developing ratings and credit ratings for countries and governments.

In her address, Parisi explain that the participation of the private sector is also a key factor in the ratings, which assesses the capacity of the public and government to support the private sector.

On his side, James Seward, Senior Financial Officer, World Bank Treasury, said that global green, social and sustainable (GSS) bond issuances totaled $1.14 trillion in 2021 (double the 2020 levels), with expectations that it would surpass $1.5 trillion in 2022.

According to Seward, there have been 40 GSS bond issuances by public and private sector issuers in Africa since 2014 worth a total of $3.2 billion, noting that Nigeria was Africa's first sovereign green bond issuer in 2017 and issued about $30 million in local currency.

Assistant Minister of Finance for Economic Affairs, Sherine Sharkawy, underpinned that in September 2020, Egypt began issuing the first package of green sovereign bonds, worth $750 million, with the aim of financing 15 projects that support climate action, including the Monorail project and the Dabaa water plant. 

To have thorough and objective risk assessment, governments and rating agencies should foster transparent exchange of information and timely communication on the updates of socio-economic conditions in the country. In addition, adequate market-based mechanisms need to be in place to support African countries to leverage affordable financial resources for their post-pandemic green and sustainable recovery.

Fair sovereign credit ratings would not only help governments manage the financing cost but also foster capital market development in African countries.

This year’s Egypt-ICF and the Meeting of African Ministers of Economy, Finance and Environment, will provide a platform for governments, multilateral and bilateral development partners, philanthropic foundations, private sector, think tanks, and civil society to consider the challenges the continent is offset by and explore avenues to overcome them. 

The Forum’s overall objectives include: mobilization of, and access to finance, to mobilize financing and catalyze private sector investments, focused on developing countries and Africa; financing climate action, adaptation and mitigation to leverage the necessary public and private support to accelerate climate action; and providing a timely platform to explore needed national actions that would help progress towards a just and green transition.