There is something magnificently peculiar about credit ratings. A committee sits in an office, pores over a country’s accounts and decides whether it deserves BBB- or BB+. One little downgrade can upset pension fund mandates and send investors scurrying. At school, a disappointing report card merely got you grounded. In international finance it can cost you billions.
Africa, after years of complaining about its grades, has opened its own examining board. The Africa Credit Rating Agency (AfCRA), launched in Mauritius last week with AU backing, promises a better-informed appraisal of African governments, businesses and municipalities. Mauritian financial services minister Jyoti Jeetun insisted that AfCRA was “not about asking the world to rate Africa more favourably”. That distinction will have to survive its first angry finance minister.
I suspect there is a grand irony behind the launch: African leaders think the new agency will be more forgiving. In fact, if it is to have any credibility at all, it might end up having to be harsher. Won’t that be a turn of events.
And this is all about to become very tense. Like much of the rest of the world, African government debt has exploded, rising about 170% over the past 15 years to $1.8-trillion. But the most troubling development is that African governments have not merely borrowed more; they have borrowed at higher interest rates and on less favourable terms. In these circumstances, getting better rated seems like a quick win with big returns.
The existing examiners, Moody’s, Fitch and S&P, are hardly beyond reproach. They enjoy a near oligopoly and generally charge the issuers whose debts they rate, an arrangement roughly equivalent to letting pupils pay their own examiners. Before the 2008 financial crisis, they awarded AAA ratings to securities assembled from dubious mortgages. The late Charlie Munger observed that the agencies “eagerly sought stupid assumptions that enabled them to do clever mathematics”.
The grievance is also economic — 23 African sovereigns lack ratings from the big three. Smaller firms and municipalities are more neglected still. Good local knowledge could make genuinely useful distinctions between risks that outsiders habitually bundle together under the capacious heading of “Africa”.
But how much of the continent’s borrowing penalty is actually the examiners’ fault?
A 2025 International Monetary Fund study found that Sub-Saharan African governments paid an extra 46 basis points (bp) when issuing international bonds, even after accounting for ratings, currency, maturity and other factors. That’s a real premium, though less spectacular than some claims suggest. In secondary bond trading, however, the researchers found no statistically significant African penalty after allowing for economic and institutional conditions. And the apparent disadvantage in sovereign ratings ceased to be statistically significant once governance was included.
Governance is an awkward concept, involving corruption, rule of law and whether a country’s treasury figures bear any relationship to reality. Its measurement is partly subjective; prejudices may creep into expert assessments. Yet bond markets have encountered plenty of African governance failures requiring no subjective interpretation whatsoever.
In Senegal, an audit exposed billions of dollars of previously undisclosed borrowing. The World Bank says its sovereign risk spread jumped from about 530bp to 940bp within two months of the revelations in 2025. Mozambique’s hidden-debt scandal offered a similar lesson. Concealing liabilities is a rather expensive way of improving your reported debt ratio.
South Africans have their own laboratory experiment. When then president Jacob Zuma fired finance minister Nhlanhla Nene in 2015, bond yields rose more than 150bp in the ensuing turmoil. Investors didn’t wait for Moody’s to assemble a committee and order sandwiches. They decided for themselves that a government willing to interfere so casually with its treasury was a more dangerous borrower.
The lesser-known truth is that ratings agencies often follow markets rather than lead them. Their peculiar authority derives partly from the rules of modern investment: some pension funds and bond indices depend on recognised rating thresholds. A downgrade can compel selling regardless of whether the investor agrees with it. AfCRA can award a government a handsome BBB, but that won’t automatically oblige a London fund manager to buy its bonds.
In a charming coincidence, Moody’s raised its overall outlook for Sub-Saharan Africa to positive on the very day its new competitor was inaugurated. The old schoolmaster was improving the class report just as the pupils opened a rival school.
AfCRA’s more substantial opportunity lies in assessing local currency debt, companies and municipalities that international agencies often overlook. That would enlarge the information available to investors rather than merely produce competing opinions about already familiar borrowers.
The crucial question is independence. We still need clarity about who owns the agency, how its analysts are protected and who will stand behind an unpopular downgrade. Daniel Cash, a law professor who has advised the project, put it neatly: “Credibility in credit rating is accumulated rather than declared.”
The AU deserves credit for challenging a complacent industry. But a ratings agency achieves legitimacy by occasionally telling its patrons things they desperately don’t want to hear. AfCRA’s finest hour might arrive when it gives an African government a worse grade than Moody’s does. Then we’ll discover whether the new examining board is an institution or a parents’ committee.
