More and more painful sanctions? -Young Africa

The uncertain political situation in the country does not signal an improvement in the economy. Defaults recorded in the local market can permanently damage Bamako’s financial reputation.

Mali recorded a payment default in Uemoa’s regional financial markets a few weeks ago. The case was featured in the Economic Newspaper, but given the short-term and long-term implications for the Mali economy, there was no worthy impact and attention.

Chauvinism

The idea claimed by self-proclaimed Pan-Africanists is that Chauvinism is nailed to the body at any cost. Africa has abundant land of raw materials, which allows us to generate and develop wealth. There is nothing for sure. This causal relationship has not been established. Of course, raw materials are needed, but not enough. Still, we need to be able to convert raw materials. The imagination that they guarantee wealth is to ignore capital (economic means) and the work required for their transformation.

Financial capital seems to be as essential to African countries as raw materials

of Wealth of NationsAdam Smith, a major study underlying classical economics, analyzes the origins of the prosperity of countries like Britain. He distinguishes between different elements of production. The land is owned by the landowner who receives the rent in return for the exploitation right to be transferred to the farmer. Jobs provided by the population; financial capital used to acquire and reward workers with the essential work tools for the conversion of raw materials.

Recommended debt

Therefore, financial capital appears to be as important as raw materials for African countries seeking to move from a rentia economy to a productive and wealth-producing economy. Keteris Palibs.. To mobilize this financial capital, the state must rely on tax revenues or, if the latter is inadequate, debt. In fact, debt is generally recommended because African countries, as we all know, have limited financial resources and limited collection capacity.

Government debt lending is often done in the financial markets through the issuance of debt securities. However, the state’s financial rating is a prerequisite for this operation. It provides an assessment of the solvency of the debt issuer (here the state), It provides information on access to capital, such as funding costs, coverage, and attractiveness. Very often, a state’s financial rating is also needed to rate other debt issuers, such as companies and communities under its jurisdiction.

Rating agencies evaluate migrant workers’ remittances to their country of origin

In reality, financial rating agencies rely on a set of macroeconomic indicators. Economic activity dynamics – measured by GDP growth rate – inflation rate, public debt – debt / GDP ratio and debt / tax revenue ratio… For emerging and developing countries, rating agencies have available foreign exchange reserves And also evaluate the transfer of funds from immigrant workers to their country of origin.

Difficulty in raising funds

In the context of an unprecedented post-pandemic macroeconomic, a country’s financial rating It is even more dependent on their financial and political stability. Economically, growth forecasts for African countries are modest, as most African countries suffer from public debt and excessive inflation inherited from the management and impact of the covid-19 pandemic.

Financial ratings in countries such as Rwanda and Ghana have recently been downgraded by Fitch Ratings, despite the upturn in economic activity. In such a situation, it becomes difficult to raise the capital (high risk premium) necessary for financing the investment, which is the vector of wealth creation.

Investors, including Africans, are not sensitive to political ideology

Therefore, the issue of financial ratings is worth careful consideration. In countries in subregions of West Africa that are exposed to increasing political instability. This applies to Mali. Prematurely, it led to payment defaults in the local financial markets. All other financial markets remember this failure as long as necessary.

The Pan-African appeal will not change much. Investors, including Africans, are not sensitive to political ideology. Regardless of whether a country’s current turmoil is justified, fiscal ratings are not only political and institutional stability, that is, the quality of public institutions, compliance with legal standards, and rules of law. Takes into account the maintenance of. Not only compliance with the government’s financial obligations over the past few years.

Economic reputation

Respecting that commitment is an important indicator used by rating agencies to establish the financial reputation of the country issuing debt securities. In 2011, with the exception of Poland, countries rated in the AAA, AA, and A categories by Fitch Ratings did not default on foreign currency-denominated debt between 1991 and 2011.

Mali believes that in the end, what appears to be a convalescent political turmoil can turn out to be devastating. In any case, it comes with significant immediate costs.