By Bitania Tadesse* and David Mulet* – IPI Global Observatory (International Peace Institute)
In February 2025, African heads of state gathered in Addis Ababa to announce a bold challenge to the global financial order: the continent will launch its own credit rating agency. The move follows years of mounting frustration over the penalty African countries pay due to systematically higher borrowing rates compared to their peers in Asia and Latin America. African policymakers argue this discrepancy isn’t primarily driven by fiscal performance but by perception, shaped by credit rating agencies headquartered thousands of miles from the continent.
The Africa Credit Rating Agency (AfCRA), to be hosted by Mauritius, is the culmination of a vision first articulated in January 2017, when African Union heads of state mandated the African Peer Review Mechanism to assist member states with credit assessments and financial governance. Its launch comes at a pivotal moment as South Africa’s G20 presidency and the Fourth International Conference on Financing for Development have generated renewed momentum around reforming the global development finance landscape and strengthened the case for an African-led rating agency. While the initiative faces significant headwinds amid a turbulent global economic landscape, it marks an opportunity for Africa to assert financial sovereignty and reshape global perceptions of its economic strength.
The African Risk Premium
African economies face a persistent “African risk premium” in global capital markets. For example, African countries face average yields of 9.1% on dollar-denominated sovereign bonds, compared to 6.5% in Latin America and just 4.7% in emerging Asia. Of 55 African nations, only four (Botswana, Mauritius, Morocco, and South Africa) hold investment-grade ratings from the “Big Three” agencies (Moody’s, Standard & Poor’s, and Fitch), which control over 95% of the world’s ratings market. The rest are labeled “junk,” a designation that automatically forces higher interest rates and prevents some institutional investors from buying their bonds.
Critics argue that these methodologies are insufficiently attuned to regional realities and partly based on external perceptions rather than a granular understanding of African circumstances. African countries have long experienced biases from the Big Three, including processes that lack transparency and models that do not adequately capture African economic realities, from the scale of informal economies to the continent’s unique demographic advantages and natural resource wealth. In many cases, analysts rate countries without visiting them, relying instead on broad regional assessments that may miss important country-specific context.
The problem isn’t just the methodologies but also how they’re applied. Rating agencies often anticipate potential defaults before they occur rather than assessing countries based on their actual track record. Despite Africa’s relatively low historical default rates compared to the perceived risk, the continent continues to be viewed as high-risk. As a result, countries in Latin America or Southeast Asia with similar debt-to-GDP ratios, inflation levels, or political stability often receive more favorable credit ratings. Empirical research has consistently shown that African sovereigns are rated more conservatively than peers with similar macroeconomic indicators.
A 2023 UNDP report found that subjective assessments by credit rating agencies have cost African countries an estimated $75 billion, including more than $28 billion in excess interest payments and nearly $46 billion in lost access to potential financing. To put this in perspective, this figure exceeds all official development assistance to Africa in 2021, and is more than twice the amount needed to reduce malaria across Africa by 90%.
At the same time, part of the responsibility lies with African states, which must improve the accuracy and credibility of their data and exercise greater prudence to avoid defaulting on their obligations to African multilateral development banks (MDB), which would erode the latter’s credit rating as well. African MDBs depend on strong credit ratings to access international capital markets at low cost and, in turn, provide affordable financing to African states. A default would undermine their ratings and constrain their ability to mobilize resources.
The Rating Agencies’ Response
The Big Three agencies dispute these claims. S&P Global Ratings maintains that it applies the same criteria globally, with methodologies that have been publicly available for decades. In a 2025 interview, a senior S&P official stated that they don’t treat Africa or Latin America or Asia differently. Rating agency representatives argue that their assessments are based on objective economic fundamentals and are not regionally biased. Moody’s similarly states that its rating criteria for governments, including in African countries, are transparent and fair, adhering to rigorous methodologies and processes that are publicly available.
However, recent actions tell a more complicated story. In November 2025, S&P announced a new national-scale rating methodology specifically adapted to the Mexican market using localized criteria and research conducted by local analytical teams. The agency is developing similar independent criteria for Brazil, Argentina, and Uruguay. S&P’s commercial leader for Latin America explained that such localized methodologies adapted to the reality of the national market allow the agency to more accurately reflect the conditions in Mexico and adapt to changes without compromising the highest international standards.
This raises an obvious question: if S&P can adapt its methodology to better reflect Latin American realities, why hasn’t it done the same for African markets? This question highlights a fundamental challenge: credit ratings combine quantitative data with qualitative judgment. While agencies insist that their processes are objective, critics note that substantial subjectivity remains in how analysts interpret data, assess political risk, and project future economic performance.
Africa’s Financial Institutions Under Scrutiny
Africa’s own financial institutions face credibility challenges as well. Despite growing its capital base and playing a critical role in connecting African economies to global finance, the African Export-Import Bank (Afreximbank) continues to face skepticism from some external actors. When Fitch downgraded Afreximbank in 2025, the African Peer Review Mechanism strongly contested the decision, arguing that it reflected flawed assessments of regional financial dynamics.
This stands in contrast to similar regional banks in Latin America and Asia, which more readily receive “preferred creditor status”—the expectation that they will be repaid first. While African MDBs have stepped in to lend to member states precisely when international banks have withdrawn due to perceived risk, this counter-cyclical role hasn’t translated into the same institutional credibility enjoyed by their counterparts elsewhere. These challenges underscore why African policymakers see AfCRA as necessary, not just for sovereign ratings but for building a more comprehensive understanding of African financial institutions and their stabilizing role in regional markets.
Building Momentum for the Reform of the Global Financial Architecture
Africa’s push for rating sovereignty comes at a strategic moment. At the February 2025 AU Summit, African leaders formally advanced the AfCRA agenda. Kenya’s president stated at the launch that “global credit rating agencies have not only dealt us a bad hand, they have also deliberately failed Africa. They rely on flawed models, outdated assumptions, and systemic bias, painting an unfair picture of our economies.” By September 2025, AfCRA was expected to begin operations, with its first sovereign ratings anticipated in late 2025 or early 2026. Unlike government-owned entities, AfCRA will be privately owned by actors across the continent to ensure its independence and prevent conflicts of interest.
This momentum builds on South Africa’s 2024–2025 G20 presidency, which prioritized development finance reforms and commissioned an expert panel to present evidence to the group’s major economies. The panel urged the G20 to impose stricter oversight of rating agencies and mandate greater disclosure of the data and models underpinning their decisions. South Africa’s finance minister argued that the findings demonstrate a clear bias against the African continent by multinational institutions, investors, and rating agencies.
The Fourth International Conference on Financing for Development in Sevilla, Spain, in June and July 2025 explicitly addressed credit rating reform in its outcome document, the Compromiso de Sevilla. The agreement calls for credit rating agencies to integrate sustainability standards, increase transparency, and adopt longer time horizons that account for the development impact of public investments. Critically, it established a recurring high-level meeting under the UN Economic and Social Council (ECOSOC), bringing together member states, rating agencies, regulators, and investors—a venue in which AfCRA can participate in shaping global standards. The Sevilla outcome also acknowledged the “Africa premium” challenge, where African countries face unjustifiably high borrowing costs, and called for additional support to address this imbalance.
AfCRA represents the latest in a series of African-led initiatives reshaping the landscape of global financing for development. The Third International Conference on Financing for Development in Addis Ababa in 2015 drew urgent attention to illicit financial flows draining the continent’s resources. Since then, Africa has championed the UN Draft Framework Convention on International Tax Cooperation, pushed for a binding convention on sovereign debt, fostered regional integration through the African Continental Free Trade Area (AfCFTA), and influenced the evolution from the Addis Ababa Action Agenda to this year’s Compromiso de Sevilla. The establishment of AfCRA continues this trajectory, seeking to correct how Africa is perceived and priced in global capital markets as part of Africa’s broader assertion of financial sovereignty.
Lessons from Other Regions
The Caribbean’s experience offers cautionary lessons. The Caribbean Regional Credit Rating Agency (CariCRIS), launched in 2004 with technical support from the Indian rating agency CRISIL, initially aimed to compete with global agencies but quickly encountered financial and institutional challenges. After accumulating roughly $3 million in operating losses during its first six years, it pivoted to focus on niche services such as ratings for small and medium enterprises. More than a decade later, the Big Three still dominate the region, and countries like Jamaica still primarily rely on global ratings when accessing international markets.
This experience underscores the importance of AfCRA defining a clear and differentiated value proposition. Rather than attempting to replace global agencies, AfCRA must identify specialized areas where it can add value, particularly around local currency debt, sub-sovereign entities, and African infrastructure projects.
Building trust with international creditors will be equally critical. Because AfCRA is designed to complement rather than replace global credit rating agencies, African countries will still need to engage proactively with the international ratings ecosystem. This includes pushing for greater transparency and participating in the new platforms created through the Sevilla outcome, such as the UN ECOSOC high-level meeting on credit ratings.
The Path Forward
AfCRA’s success will ultimately depend on whether it can deliver what CariCRIS could not: ratings that are seen by international investors as analytically rigorous, methodologically sound, and procedurally transparent. The agency must resist political pressure to issue inflated ratings, which would undermine its credibility. As one analysis noted, AfCRA’s purpose is not to issue artificially favorable ratings—it is to issue accurate ones, even if that means some African issuers may receive lower grades than those currently assigned by global agencies.
AfCRA’s real value lies in providing context-specific analysis grounded in better local data. While this may reveal that African economies are less risky than currently perceived, it could also reveal risks that global agencies miss. The potential impact is significant. If AfCRA can establish credibility with investors and reduce the perceived risk premium even modestly, the financial benefits would be substantial. Experts anticipate that with “Given Africa’s $155 billion bond stock and a conservative estimate of a 1% yield reduction resulting from AfCRA’s credibility effect, the continent could collectively save an estimated $7 billion in interest over five years.” These are resources that can be diverted to much-needed social and economic investment.
For this to work, African governments must also improve the accuracy and credibility of their economic data and exercise greater fiscal discipline. Lower borrowing costs depend not only on rating methodologies but also on transparent governance, sustainable debt management, and credible institutions. South Africa’s recent upgrade by S&P—the first in almost 20 years—is evidence that consistent fiscal discipline, regular and transparent communication, and direct engagement with credit rating agencies can yield results.
For African policymakers, AfCRA is more than a technical fix to borrowing costs; it is a statement of financial sovereignty and a challenge to a system many see as structurally biased against the continent. The fact that S&P has adapted its methodology for Latin American markets but hasn’t done so for Africa only strengthens this argument. Whether AfCRA’s challenge reshapes global finance or follows the path of regional agencies elsewhere depends on the next critical months as the agency moves from aspiration to operation.
*Bitania Tadesse is the policy specialist for Africa at the International Peace Institute.
*David Mulet is an IPI advisor on global sustainable development issues.