Why Africa Pays More to Borrow: The Hidden Bias in Credit Ratings

By Aksah Italo
Published on 01/22/26

For African governments, a credit rating is not a technical footnote, it is a price tag. It determines how much a country must pay to borrow, how much capital it can attract, and whether long-term development plans ever move beyond paper.

A single downgrade can stall projects, drain foreign exchange, and push public finances deeper into strain.

Yet the power to make those judgments rests overwhelmingly with three firms headquartered outside the continent. And increasingly, African policymakers are asking whether those judgments reflect economic reality, or reinforce a structural bias.

Three firms (Moody’s, Standard & Poor’s, and Fitch Ratings) control more than 95 percent of the global sovereign credit ratings market. Their assessments shape capital flows across borders, influencing investment decisions, interest rates, and access to finance.

Their methodologies are designed to impose comparability across countries. Yet for many African states, the outcome has been a persistent disadvantage.

A 2024 report by the United Nations Development Programme (UNDP) puts hard numbers behind a long-held grievance. According to the report, African countries have lost an estimated 74.5 billion dollars in financing and development opportunities as a direct result of subjective and poorly explained credit ratings.

The report argues that global credit rating methodologies consistently misinterpret African economic realities. Limited statistical capacity is treated as evidence of weak fundamentals. Large informal economies go uncounted. Structural reforms and long-term growth prospects are discounted, while short-term liquidity pressures are given disproportionate weight. The result is a system that penalizes context instead of evaluating it.

These assessments systematically disadvantage African economies, widening funding gaps for infrastructure, climate adaptation, and long-term growth. It describes this phenomenon as “asymmetric treatment”: when similar economic signals yield harsher judgments simply because the issuer is African.

Credit rating agencies, headquartered in developed economies, do not explain their judgments in plain terms. Their methods are complex, their revisions frequent, and their assumptions shielded behind technical language that resists challenge. 

Jacob Assa, a senior economist at UNDP Africa, has been blunt in his argument. He  said that the criteria used to upgrade or downgrade countries are often “inexplicable.” 

“The Ratings”, he notes,”are opaque by design”.

The outcome is predictable. African governments end up paying more to borrow, even when their debt situation is improving. Roads, hospitals, and other infrastructure projects stall. Debt piles up. Development slows under the weight of higher interest costs.

Faced with this unfair system, African policymakers are now considering what once seemed impossible: creating their own credit rating institutions.

Recently, proposals for an African Credit Rating Agency and an African Investment Guarantee Agency have been put forward as part of a broader push for economic independence. The plan initially proposed by William Ruto, President of Kenya is not to avoid oversight, but to demand fairness.

The former African Development Bank President(AfDB) Akinwumi Adesina(PhD) concurring with the president.

“Africa is not asking for a free pass,” Adesina echoed. “We want a fair process that properly evaluates African countries.”

Adesina estimates that fairer, more context-sensitive credit assessments could unlock up to 80 billion dollars in additional financing for the continent.

The urgency is growing. As concessional finance tightens, African countries are increasingly turning to international bond markets. In this shift, credit rating agencies have become decisive gatekeepers. Over the past decade, interest payments on African Eurobonds have risen by 80 percent, while 40 percent of East Africa’s total debt is now owed to private creditors.

Yet scrutiny remains one-sided. Despite mounting criticism from African governments, researchers, and multilateral institutions, only three international credit rating offices operate on the continent, all based in South Africa.

The economist Jacob says credit rating agencies should be subject to oversight, required to disclose their methodologies, and encouraged to establish country offices across Africa. Without these changes, subjectivity will continue to pass as technical objectivity.

“Having offices all across the continent is crucial,” he said.

Ethiopia, for example, is currently classified by Fitch Ratings as being in restricted default on its foreign-currency obligations following a missed coupon payment on its one billion Eurobond in late 2023 and ongoing restructuring under the G20 Common Framework. Moody’s assigns the country a Caa3 rating, deep in speculative territory. Standard & Poor’s places it in the CCC range, signalling vulnerability to default even under favourable conditions.

Yet these ratings sit uneasily alongside Ethiopia’s improving debt indicators. Public and publicly guaranteed debt stood at 40.2 percent of GDP at the end of 2023, declining to approximately 34.8 percent by mid-2024. While liquidity pressures, foreign-exchange shortages, and restructuring challenges remain severe, the disconnect between improving ratios and persistently distressed ratings has raised questions among policymakers and economists alike.

In contrast, a 2025 report by the UNDp titled "Sovereign Credit Ratings: Perspective for African Development” shows South Africa’s relatively strong institutional framework, transparent communication with rating agencies, and consistent macroeconomic policy helped it navigate sovereign credit assessments more effectively than many of its peers. 

The Democratic Republic of the Congo offers another revealing case. Despite improvements in political stability and a declining debt-to-GDP ratio, its credit rating has yet to be updated by Moody’s suggesting that progress, when African, often travels slowly.

Jean-Marc Kilolo of the UN Economic Commission for Africa argues that a continental rating agency  could provide context-specific assessments and reduce vulnerability to external shocks.  

Still, there is broad agreement on one point: Africa is consistently undervalued.

Part of the challenge lies at home. Weak data systems and limited transparency complicate rigorous assessment. But the undervaluation runs deeper. Adesina argues that Africa’s natural capital, its minerals, biodiversity, and carbon stocks is systematically ignored in credit assessments, despite its economic significance. Proper valuation, he says, could materially improve credit profiles and lower borrowing costs.

Domestic reform remains essential. Africa loses an estimated 88.6 billion dollars annually to illicit financial flows. Stronger tax systems, better governance, and reduced corruption could expand fiscal space and reduce reliance on external borrowing.

Climate finance presents another fault line. Africa is among the regions most exposed to climate shocks, yet receives a disproportionately small share of global climate funding. Without fair access to concessional finance and green investment, vulnerability will deepen.

These tensions dominated discussions at the African Development Bank’s annual meetings last year, marking the institution’s 60th anniversary. Despite subscribed capital reaching 380 billion dollars, ownership remains uneven. Non-African shareholders including the United States, Japan, China, and major European economies hold larger stakes than any African country.

An Africa Economic Outlook report released at the meeting put the challenge plainly, the continent faces a 477.2 billion dollars financing gap to achieve sustainable development.

Economists are not calling for the global system to be torn down. But there is increasing agreement that Africa must take charge of its own data, institutions, and influence over how its creditworthiness is measured.