The continent that pays more to borrow. Inside Africa’s fight against biased credit ratings.

Africa’s dialogue with key institutions at the apex of the global financial architecture is a vital step on a collaborative path toward a more sustainable and debt-resilient continent. With the discourse around credit ratings gaining ground, AfriCatalyst has embarked on the important first step of engaging rating agencies, experts and other stakeholders on laying the groundwork for a future where fairer, more accurate credit assessments are possible.

According to the African Economic Outlook 2024, African countries need to close an annual financing gap of about $402 billion before 2030 to fast track their structural transformation and catch up with high-performing countries in key Sustainable Development Goals (SDGs) such as health, education, and energy. The African Union’s development blueprint (Agenda 2063) emphasized African-led financing to fund development in key sectors like infrastructure and industrialization.

The CRA Landscape

In 1994, only South Africa had a sovereign credit rating. In 2003, the UNDP partnered with Standard and Poor’s to help more countries get rated and thus access capital markets. As of 2025, 32 African countries hold one or more ratings from the ‘Big Three’ credit rating agencies (CRAS) – S&P, Moody’s, and Fitch. However, only a few (Botswana, Mauritius, Morocco, and South Africa) are rated at an investment-grade, with the rest still assigned sub-investment grade ratings, also known as junk status.

Subjectivity in credit assessments is estimated to have cost some African countries over $75 billion in additional interest payments and forgone lending (UNDP, 2023) and $46 billion in potential lending (Brookings, 2024). Research by UNCTAD and AfriCatalyst shows that sovereign downgrades in Africa are not always driven by fundamentals, but often by exogenous shocks or regional contagion effects. Thus, countries are often downgraded during crises, when they most need access to affordable credit. 

A 2023 study found that African countries face interest rate spreads of 1.5% points higher than similarly rated nations in other regions, which translates to billions in excess debt service costs. For instance, Ghana, which, despite having undertaken several fiscal consolidation efforts and securing an IMF-backed reform program in 2023, was downgraded further into junk status due to debt restructuring and inflation pressures. 

A Collaborative Path

AfriCatalyst and UNDP have emphasized the importance of creating a localized and development-sensitive rating system. The proposed AfCRA is intended to operate with greater contextual understanding, drawing from region-specific data and methodologies that reflect Africa’s unique development path. AfCRA aims to integrate indicators related to the SDG financing gap, debt-for-climate swaps, or resilience capacity. These are dimensions that the Big 3 CRAs often overlook. 

Kenya is a promising regional example of how such a framework can work. The East African nation has seen public institutions begin working with development partners to improve local creditworthiness assessments. Through partnerships with AfDB and the UN Capital Development Fund (UNCDF), Kenya has piloted subnational credit ratings for counties seeking to access green and infrastructure finance. This approach is enabling domestic resource mobilization and investor confidence in decentralized development planning. If scaled, such innovations could feed into a broader ecosystem where credit ratings become tools for empowerment and reform.

AfriCatalyst’s CEO, Daouda Sembene, has repeatedly stressed the urgent need for collaboration among African countries and institutions. “AfriCatalyst is proud to be at the heart of this critical dialogue, building on the foundation of our credit ratings initiative with UNDP. We are optimistic that through stronger collaboration between African institutions and global rating agencies, we can foster a more accurate, robust, and representative credit rating ecosystem, one that empowers African nations and promotes sustainable growth,” remarked Sembene.

The UNDP & AfriCatalyst’s Africa Credit Rating Advisory (AfCRA) Initiative, backed by the African Union, presents the first homegrown solution to rival the global “Big 3” firms. Once implemented as envisaged, AfCRA can be a unique frontier for collaboration and partnerships between multilateral & bilateral organizations, regional bodies, sub-regional development banks (SRDBs) like AfDB, Afreximbank, BOAD and ECOWAS Investment Bank. AfriCatalyst is partnering with these bodies in designing AfCRA’s capital structure, governance framework, and operational roadmap. 

Laying the Groundwork

The African Development Bank (AfDB) estimates that more balanced credit assessments could save African nations up to $74.5 billion in annual borrowing costs. With localized country-level pilots for AfCRA slated to kick start later this year, UNDP and AfriCatalyst are working closely to empower countries with the knowledge and tools to enhance their sovereign credit ratings. 

Already, this technical groundwork has identified common challenges like insufficient understanding of methodologies, absent SCDRs and limited capacity to present economic data. During a recent regional consultation in Abidjan, attended by former CRA analysts and financial experts, it emerged that out of West Africa’s 15 countries, only a handful currently hold sovereign ratings issued by the Big 3 CRAs. 

Discussions have pivoted to the practicalities of obtaining and managing local currency ratings and in-depth analysis of macro and microeconomic data, which involves the tedious task of interpreting government balance sheets, growth metrics, general government debt and financing the SDGs. Global Head of Sovereigns at S&P, Roberto Sifon Arevalo, has previously reiterated the role of transparency, methodologies and best practices they need to manage a country’s rating process. 

“Countries need to have a stable group of technical teams who understand how the rating process works, not just the methodology but also what all other parts are. What does the rating committee need?” said Arevalo.

Moreover, there’s ongoing efforts to bolster capacity building through expert technical support systems, improve data access via an online resource platform, and knowledge sharing through a proactive network of African professionals working in credit ratings. This paints a more conclusive fiscal picture, unique to every country, thus rebalancing the scales within an evolving global financial architecture.

Multidimensional Vulnerability Index

On the margins of the 2025 World Bank and IMF Spring Meetings in Washington DC, conversations pivoted towards the role of the Multidimensional Vulnerability Index (MVI) in better aligning development financing for Least Developed Countries (LDCs). Experts have explored how the MVI can strengthen existing methods to identify financing needs and allocation. 

Contrasting from traditional frameworks, such as eligibility for concessional finance like IDA, often based on GNI per capita, MVI introduces a composite assessment incorporating economic, environmental, and social vulnerabilities. This metric enables more targeted and equitable resource allocation, especially for countries that are no longer “low income” but remain highly vulnerable. 

For instance, UNECA revealed that African countries witnessed an increase in positive credit rating actions in the second half of the year 2024 as compared to downgrades and negative outlooks, as was the case in the first half of 2024. However, this wasn’t enough to trigger any rating upgrade, with nations like Tanzania remaining at least four upgrades away from joining the investment grade countries in Africa.

While MVI offers a transformative opportunity to reorient global financing towards structural vulnerability and resilience, its integration into global and national financing systems requires careful planning, broad consensus, and capacity-building.

In a bid to reduce reliance on aid, secure sustainable climate finance and advance reforms that align global systems with African priorities, regional cooperation remains important. Credit ratings don’t offer just short-term mitigation, they provide an opportunity to reform financial reforms on the long-term.