AfDB Launches Initiative to Boost Africa’s Sovereign Credit Ratings

By Adedapo Adesanya

The African Development Bank (AfDB) is set to launch an initiative to help African countries improve their sovereign credit ratings by strengthening economic data and transparency.

AfDB President, Mr Sidi Ould Tah, disclosed this on Thursday while speaking at the S&P emerging markets conference in London.

Mr Tah said gaps in economic data and market infrastructure contribute to perceptions of higher risk, which in turn increase borrowing costs for African countries.

He said the initiative would be implemented through the African Legal Support Facility to help governments prepare for sovereign credit assessments and improve the quality of information available to international rating agencies.

“What is missing 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,” Mr Tah said.

According to him, improving credit ratings is a common objective across the continent, noting that only three of Africa’s 54 countries currently have investment-grade ratings.

The initiative comes amid concerns among African governments over the high cost of accessing international capital and the factors influencing sovereign risk assessments.

The AfDB programme 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, is expected to launch an Africa-wide ratings agency this month as part of efforts to address concerns over borrowing costs.

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

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

He also said ratings by Fitch Ratings, Moody’s and S&P Global Ratings have significant influence on African countries’ access to international capital markets and investor sentiment.

Meanwhile, the AfDB is working to strengthen domestic financing and capital markets across Africa as part of efforts to boost domestic resource mobilisation.

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

He said the effort would help African economies increase their capacity to mobilise local funding while easing some of the constraints limiting the development of domestic financial markets.