AfDB moves to help African countries improve credit ratings, cut borrowing costs

The African Development Bank (AfDB) will launch an initiative to help African countries better prepare for sovereign credit ratings by improving the quality of economic data and transparency, AfDB President Sidi Ould Tah said on Thursday.

Speaking at the S&P emerging markets conference in London, Tah said gaps in data and market infrastructure contribute to perceptions of higher risk and, in turn, increase borrowing costs for African countries.

The initiative will be implemented through the African Legal Support Facility and is intended to help governments prepare for credit assessments and improve the information available to ratings agencies.

AfDB targets better credit information

Tah said improving the quality and availability of data would be important in addressing the information gaps that can influence how African economies are assessed by international credit rating agencies.

• “What is missed in Africa is the data and the infrastructure…the opacity in some markets creates this notion of high risk, which leads to high cost of borrowing,” Tah said.

He said improving credit ratings was a common objective across the continent, noting that only three of Africa’s 54 countries are currently investment grade.

The AfDB initiative will use the African Legal Support Facility to help countries prepare for ratings through better data and greater transparency.

The move comes amid longstanding concerns among African leaders about the cost of accessing international capital and the factors that influence sovereign risk assessments.

Africa pursues alternative ratings framework

The AfDB initiative is separate from efforts by African institutions to establish a continent-wide credit rating agency.

The African Peer Review Mechanism, an African Union-backed initiative, plans to launch an Africa-wide ratings agency this month, with the stated objective of addressing concerns around borrowing costs.

Earlier this year, Nigerian President Bola Tinubu also advocated the creation of an Africa-owned credit rating agency, arguing that African economies face borrowing costs that do not adequately reflect their economic conditions.

In an opinion article published by the Financial Times, Tinubu referred to an “Africa premium” — the difference between perceived and actual risk — as a factor contributing to higher capital costs for African countries.

He also argued that assessments by Fitch Ratings, Moody’s and S&P Global Ratings have significant influence over African countries’ access to international capital markets and investor sentiment.

AfDB pushes domestic financing

The AfDB is also working to strengthen local financing and capital markets across the continent as part of its broader effort to increase domestic resource mobilisation.

Tah said the bank had engaged stakeholders, including pension funds and banks, to identify and address obstacles to the development of stronger domestic capital markets.

The effort is aimed at increasing the capacity of African economies to mobilise local funding while reducing some of the constraints that limit the development of domestic financial markets.

The AfDB’s credit-rating initiative will therefore focus on improving the data and transparency available to support sovereign assessments, while its wider financing efforts target stronger domestic capital markets.