Low credit ratings are forcing African countries into a cycle of high borrowing costs and liquidity challenges.
This concern was raised at a plenary session on harnessing the power of sovereign credit ratings for Africa’s economic transformation.
The session was organized by the Economic Commission for Africa (ECA) during the 2024 African Economic Conference in Gaborone, Botswana.
Zuzana Schwidrowski, Director of ECA’s Macroeconomic, Finance, and Governance Division, described the situation as a “vicious spiral.”
She explained that low credit ratings lead to costly borrowing and rising debt for many African nations.
“The issue of double-digit inflation is also preventing central banks from reducing interest rates,” Schwidrowski said.
High inflation and policy constraints are particularly affecting countries that rely heavily on resources and fuel exports.
Despite the grim picture, Schwidrowski highlighted some positive changes in specific countries.
“Tanzania’s credit rating was recently upgraded by Moody’s, and South Africa received a positive outlook from S&P,” she noted.
However, these isolated improvements are not enough to shift the broader challenges facing the continent.
Sonia Essobmadje, Chief of ECA’s Innovative Finance and Capital Markets Section, stressed the need for structural reforms.
“Improving Africa’s economic fundamentals is key,” Essobmadje said.
She emphasized that national and regional financial market development should be a top priority.
This, she argued, would reduce reliance on external debt and improve monetary policy effectiveness.
“A sustainable, inclusive growth strategy is what Africa needs,” Essobmadje added.
Misheck Mutize, a Lead Expert on Credit Ratings for the African Union, warned about over-reliance on these ratings.
“Credit ratings can amplify market instability and create pro-cyclicality,” Mutize cautioned.
He pointed out that the European Union enforces strict rules on when sovereign credit ratings can be published.
Under EU Regulation 1060 of 2009, ratings are only released on Fridays after business hours to prevent market disruptions.
This allows investors to analyze the data over the weekend, reducing the chances of panic-driven reactions.
Marcus Courage, CEO of Africa Practice, brought another issue to light.
He revealed that negative media narratives are costing African nations billions of dollars.
“Our research shows that biased media coverage is inflating interest rates on African debt,” Courage stated.
He estimated that these narratives are costing Africa $4.2 billion annually in inflated borrowing costs.
Many of these stories are centered on conflict and war, reinforcing stereotypes about the continent.
Daniel Cash, a non-resident Fellow at the United Nations University Centre for Policy Research, called for radical reforms.
“To overcome the ‘credit rating impasse,’ Africa needs large-scale architectural change,” Cash argued.
He urged global partners to step in and help African countries navigate the complex credit rating system.
“Now is the time for a unified approach to support Africa and the Global South,” Cash said.
