African countries continue to face exorbitant borrowing costs as global credit rating agencies assign them “sub-investment grade” or “junk” ratings that do not reflect the continent’s true economic potential.
The Executive Secretary of the United Nations Economic Commission for Africa (ECA), Claver Gatete, raised this concern in a statement on Friday, highlighting the staggering disparity in borrowing costs between African nations and developed economies.
Gatete revealed that while a country like Germany can borrow $1 billion at just 2.29%, paying about 229 million dollars in interest over 10 years, a country like Zambia, under current conditions, will pay up to $2.25 billion for the same amount, almost ten times more.
“This is not just about fiscal policy or repayment history; it is about perception. African countries do not control the rating agencies, and that has billion-dollar consequences,” Gatete said.
Why are Africa’s ratings so low?
According to Gatete, most major credit rating agencies—including Moody’s, S&P, and Fitch—are headquartered outside Africa and often assess the continent’s economies through an external lens.
Critics argue that these evaluations frequently overlook local political, social, and economic dynamics, leading to overly pessimistic ratings.
“Africa’s external debt currently stands at approximately 1.1 trillion dollars, with around 163 billion dollars spent annually on servicing these obligations.
“Yet, many countries on the continent remain rated as “sub-investment grade” or ‘junk,” resulting in significantly higher interest rates,” he said.
Corroborating Gatete, Chief of Innovative Finance and Capital Markets at ECA, Sonia Essombadje, emphasized that credit ratings are opinions, not absolute truths.
“They combine data and subjective assessments, it is not just numbers,” she said.
Africa’s solution: A homegrown credit rating agency
To counter perceived biases, the African Union (AU) is establishing the Africa Credit Rating Agency (AfCRA), designed to provide more balanced and context-aware assessments.
- Essombadje clarified that the AfCRA is not trying to replace global agencies like Moody’s and S&P, but wants to bring in the African perspective.
- While the AfCRA is not yet fully operational, proponents believe it will help bridge the information gap between lenders and African borrowers, potentially lowering borrowing costs in the long run.
- Meanwhile, Senior Analytical Advisor for Africa at Moody’s, Aurélien Mali, defended the agency’s approach, stating that its methodologies are rigorous, transparent, and publicly available.
“These criteria are publicly available on Moodys.com,” he added.
More insights
Despite that reassurance, many African economists argue that real-world outcomes reveal a clear disadvantage.
They say the dominant agencies apply a one-size-fits-all model to economies with very different fundamentals.
To create space for more transparency and understanding, the ECA and APRM recently convened a workshop in Accra, bringing together government officials and rating agencies.
