Creation of Africa’s own financial rating agency long over due

By Mary Alorh

About a month ago, I discussed how Bretton Woods institutions and other international creditors are imposing unfair conditions on African countries regarding loan acquisitions.

Many African nations seek financial aid from these global institutions to revive their struggling economies. However, such loans often lead to increased debt burdens.

Countries like Ghana, which had promising prospects in previous decades, have fallen into economic crises largely due to poor government management. Additionally, high interest rates on loans from these institutions significantly contribute to this financial strain. African nations typically face higher interest rates compared to their European or other global counterparts. Furthermore, African countries receive lower credit ratings because rating agencies place heavy emphasis on Environmental, Social, and Governance (ESG) factors, which can be challenging for developing economies.

While ESG factors complement traditional financial indicators, they offer a broader view of investment sustainability. Countries with low ESG scores face reduced investment and loan opportunities.

Given the complexities of African economies, it is often easier for governments to seek overseas investment with lower or minimal interest rates. However, the financial ratings of many African countries are adversely affected by low scores from international rating agencies, making debt refinancing difficult.

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For instance, in 2022, Ghana’s economic downgrade to a high-risk category was primarily attributed to its poor ESG scores.

In response to these challenges, African finance ministers have advocated for greater financial autonomy. Consequently, the African Peer Review Mechanism (APRM) has launched an independent credit rating agency. This initiative aims to reduce dependence on international organizations whose ratings have been criticized for obstructing economic progress and citizen development in Africa.

However, the African Union must encourage member countries to adopt better fiscal discipline to further economic development.

In conclusion, establishing an African credit rating agency is a positive step, but it is also crucial for African leaders to address ongoing economic challenges to foster the continent’s growth.

Mary Alorh is Director of Administration at DefSEC Analytics Africa Ltd., and is an expert in Gender, Youth, and Peace & Security initiatives in West Africa.