AfDB to Help African Countries Improve Data Ahead of Sovereign Credit Ratings
By Aboki Forex —
The African Development Bank will launch an initiative to help African countries prepare better for sovereign credit ratings by improving the quality of their economic data and transparency. AfDB President Sidi Ould Tah announced the plan on Thursday at the S&P emerging markets conference in London.
Tah said gaps in data and market infrastructure feed perceptions of higher risk, and those perceptions push up borrowing costs for African countries. The initiative will run through the African Legal Support Facility and is meant to help governments get ready for credit assessments and give rating agencies better information.
Data gaps and the cost of borrowing
Tah tied the problem directly to how international rating agencies read African economies. “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,” he said.
He noted that improving credit ratings is a shared goal across the continent, pointing out that only three of Africa’s 54 countries are currently investment grade.
The AfDB move comes amid long standing complaints from African leaders about the cost of accessing international capital and the factors that shape sovereign risk assessments.
Africa’s push for its own ratings framework
The AfDB initiative is separate from efforts by African institutions to set up 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 aim of addressing concerns around borrowing costs.
Earlier this year, Nigerian President Bola Tinubu also pushed for the creation of an Africa-owned credit rating agency, arguing that African economies face borrowing costs that do not 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 driving up capital costs for African countries.
He also argued that assessments by Fitch Ratings, Moody’s and S&P Global Ratings carry significant influence over African countries’ access to international capital markets and investor sentiment.
Domestic financing in focus
The AfDB is also working to strengthen local financing and capital markets across the continent under its wider push to increase domestic resource mobilisation. Tah said the bank had engaged stakeholders, including pension funds and banks, to identify and clear obstacles to stronger domestic capital markets.
The effort aims to raise the capacity of African economies to mobilise local funding while easing some of the constraints holding back domestic financial markets. The credit-rating initiative will focus on the data and transparency that support sovereign assessments, while the wider financing work targets deeper domestic capital markets.
For Nigeria and other African borrowers, cheaper access to international capital depends partly on closing the data gaps that rating agencies say they see. Better disclosure will not by itself win an investment grade rating, but it removes one stated reason for the premium African issuers pay.