The BRICS countries will establish their own rating agencies to create a balance to the Western-orientated agencies, South African president Jacob Zuma said on Tuesday 25 October. The five nations that make up the BRICS group – Brazil, Russia, India, China and South Africa – discussed setting up an independent ratings agency during the 8th BRICS summit in Goa, India last week.
Members of the group expressed concerns over the methodologies used by the big three global agencies – Moody’s Investor Service, Standard & Poor’s (S&P) and Fitch Ratings – who they blame for constraining growth in emerging nations. Furthermore, some BRICS members believe that the agencies unfairly target developing nations, while rarely rating the economies of Western nations. The new ratings agency will, therefore, meet the requirements of the BRICS nations and other developing countries in a more balanced manner, Zuma said in a Q&A session to the upper house of the South African parliament on Tuesday.
“The BRICS think that they need a ratings agency that will be moving [with] the understanding and philosophy of those countries as to how the economy should be,” he said. “That’s precisely the reason why they have decided to rate themselves and others as well so that a completely balanced view is indeed taken into account when the ratings are made.”
Zuma’s statement came during a parliamentary Q&A session where the president was also quizzed about the fraud charges against Finance Minister Pravin Gordhan, former Public Protector Thuli Madonsela’s report on state capture, and the looming downgrade of South Africa’s credit rating. Moody’s and S&P have both threatened to downgrade South Africa’s BBB-credit rating to junk status because of low economic growth and uncertainty over Gordhan’s future.
The South African president’s sentiment mirrored that of KV Kamath, the president of the BRICS-promoted New Development Bank (NDB), who said the bank’s attempts to raise bonds in many countries was being affected by the BRIC countries’ sovereign ratings, despite the bank having deep capital buffers.
“We need not constrain ourselves from our ability to do business […] if this is the norm, I fear growth in the developing world will also be impacted,” Kamath said at the summit.
The NDB announced plans to ramp up lending to $2.5bn in 2017, this follows the $900m the bank lent to each member state to fund green projects. The bank also has also revealed that it was issuing a 3bn yuan ($450m) bond.