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06/06/2017

The role of credit ratings agencies has been a contentious one, with a number of differing views being aired about their credibility, how they form part of the architecture of global finance and what it is that influences these decisions.

South Africa’s downgrade by international ratings agencies to non-investment grade following President Jacob Zuma’s most recent cabinet reshuffle threw the country into a bit of tailspin. It launched debate about the credibility and significance of these ratings.

Nelson Mandela Metropolitan University’s Faculty of Business and Economic Science hosted a panel discussion on credit ratings, which are defined as an evaluation of the debtor’s credit risk and its ability to repay debt, on Monday, 5 June.

The panelists tackling the topic were NMMU Dean of Business and Economic Sciences Dr Ismail Lagardien, the University of Pretoria’s Professor of Political Economy Lorenzo Fioramonti and Professor Mzukisi Qobo from the University of Johannesburg.

Dr Lagardien said the panel discussion marked an important point in the opening up of the faculty to greater diversity of ideas and influences.

“It starts to grapple with the real issues that affect the lives of people in the country, and the world. In particular, it breaks out of the narrow confines of research and scholarship that is removed from real problems of poverty, inequality, unemployment, precarity and, significantly, of the power-relations that sustain these conditions. We will have these high-level panel discussions every month,” he said.

Dr Lagardien’s discussion point was on the need to address the weakness in the global architecture to better understand the causes of crises, mitigate their impact on the poor and create safety nets of buffers against the worst fall out. He will also touch on the role and place of credit ratings agencies and how they may be informed or reconceived.

Dr Fioramonti spoke on the poor credibility and reliability of international ratings and the perverse incentives they generate. He  also touched on why South Africa, despite the lack of credibility of ratings, still deserves Junk status.

The backdrop for Prof Qobo’s talk was South Africa's institutional weaknesses, as laid bare by the recent ratings downgrade.

“I reflect on three dimensions. The first being the role of credit rating agencies as expression of structural power of capital and why they are still relied upon despite ethical deficiencies. Secondly, responses to credit rating agencies in developed and developing countries and thirdly, why it is unhelpful to think about credit rating agencies of the BRICS,” said Prof Qobo.

Contact information
Ms Zandile Mbabela
Media Manager
Tel: 0415042777
Zandile.Mbabela@mandela.ac.za