The Big Three ratings agencies, Moody’s, S&P Global and Fitch (above), have extensive influence over how creditors assess Africa’s risk profile. (photo by Mike Kemp/In Pictures via Getty Images)
The African Development Bank (AfDB) has added to calls for a continent-based credit rating agency that would provide an alternative to the so-called Big Three.
Speaking at the launch of the bank’s economic outlook report on Thursday, AfDB president Akinwumi Adesina cited a United Nations Development Programme (UNDP) finding that African countries could save up to $74.5 billion a year if credit ratings were based on less subjective assessments.
During an AfDB’s governors’ dialogue, Adesina made the case for an African ratings agency that would give a second opinion on the health of domestic economies. Currently the Big Three ratings agencies — Moody’s, S&P Global and Fitch — have extensive influence over how creditors assess Africa’s risk profile.
Adesina was addressing delegates at the AfDB’s annual meetings in Nairobi, Kenya, this week, where reforming the global financial architecture was among the main subjects of discussion. This comes as a number of African economies languish under elevated borrowing costs, hamstringing their ability to invest in much-needed infrastructure.
The bank’s African Economic Outlook report notes that sovereigns face higher costs of financing in international capital markets than advanced and emerging economies. These costs are based on risk perceptions by international investors, influenced by unfavourable credit ratings.
The 2023 UNDP report noted that in the wake of the Covid-19 pandemic, the Big Three ratings agencies downgraded up to 62.5% of rated African countries, compared with a global average of 31.8%.
These downgrades led to 17 African sovereigns receiving downward outlook revisions (four from positive to stable and 13 from stable to negative). The only two countries with investment grade ratings before the pandemic — Morocco and South Africa — were downgraded.
According to the UNDP’s analysis, 94% of Africa’s sovereign borrowers were rated non-investment grade at the time of the report.
The journalist’s travel and accommodation was sponsored by the African Development Bank.