African Nations Urge Credit-Rating Overhaul to Lower Borrowing Costs

AFRICAN BUSINESS AND ECONOMYOctober 28, 2024 at 3:08 PM UTC

TLDR

African countries facing high financing costs due to inflated risk assessments by credit-rating agencies
Standard Bank Group CEO, Sim Tshabalala, criticizes the $75 billion added costs and lost revenue due to perceived risks
African leaders propose a pan-African rating agency to reform credit assessments, aiming to establish it by the next year

African countries face high financing costs due to inflated risk assessments by credit-rating agencies, according to Standard Bank Group CEO Sim Tshabalala.

Speaking at the Future Investment Initiative Institute conference in Riyadh, Tshabalala highlighted a United Nations study that found African nations incurred $75 billion in added costs and lost revenue due to perceived risks. Tshabalala called these costs “preposterous” and “unconscionable,” citing the gap between ratings and the continent's actual economic performance.

Tshabalala’s remarks follow calls from African leaders to reform credit assessments for the continent, with proposals for a pan-African rating agency underway. The African Peer Review Mechanism, African Development Bank, African Export-Import Bank, and African Union Commission are collaborating to establish this agency by next year.

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Key Takeaways

African leaders argue inflated risk perceptions unfairly increase borrowing costs, impacting development. A study shows African nations pay up to 500 basis points more than similarly rated nations. For example, a $1 billion loan at this premium costs African countries an additional $1 billion over 20 years, exacerbating debt vulnerabilities. Tshabalala pointed to South Africa, rated “junk” despite its robust institutions, unlike AAA-rated Denmark, urging transparency in risk assessments and lending practices.

Economy

Africa

Credit Rating

Sovereign Credit

AfDB

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