Reducing the cost for finance for Africa: The role of Sovereign Credit Ratings

This report presents a novel analysis of sovereign credit ratings across African economies. In contrast to the usual focus on bias or procyclicality, we demonstrate that mismatched sovereign debt ratings for African nations are primarily due to idiosyncrasies in the dominant approach of the Big Three credit rating agencies (S&P, Moody’s, and Fitch). Additionally, the report critically reviews the link between credit ratings and the development process, highlights the role of multinational organizations in assisting African countries with their credit ratings initiation and review processes, compares domestic Africa-based credit rating agencies to the oligopolistic structure of the Big Three, and estimates new patterns in credit rating idiosyncrasies, opportunity costs, and interest savings due to underrating of sovereign debt for selected African countries. Finally, the report develops policy recommendations for different stakeholders, including African countries, rating agencies, and multinational development groups.