Economists in Africa are pushing for a fair credit rating in the global market in a bid to ease the current debt pressure on the continent.
Speaking during a side event for the ongoing Africa Development Bank annual meet in Nairobi, the African Economic Research Consortium (AERC) accused major agencies like S&P, Moody’s and Fitch of being biased against Africa.
"There is a need for a standard credit rating mechanism to address chronic low ratings by global firms, exacerbating the continent's public debt, and threatening the sustainability and access to lines of credit,'' AERC executive director Victor Murinde said.
He regretted that only two African economies are currently rated at investment-grade levels, implying high interest rates and low borrowing volumes for the continent.
The session aimed to share evidence and policy proposals on global financial architecture reforms that benefit all African countries observed that African nations are finding themselves burdened with interest payments eight times higher than their European counterparts and four times greater than the United States.
The panel; further noted that efforts to mitigate the impact of credit ratings have resulted in a noteworthy rise in the number of African countries subjected to evaluation by the “Big Three” credit rating agencies globally.
As of 2023, 32 countries had been assessed and given a rating, compared to only 10 in 2003.
Despite this progress, there remains a significant subjectivity in the risk perception assigned to African countries.
From January to June 2023, there were 13 ratings downgrades assigned to 11 countries.
Africa’s debt profile has surged by 183 per cent since the beginning of the new millennium, a rate nearly four times higher than its gross domestic product growth rate.
Interest payments now constitute the highest and fastest growing portion of expenditure for many African economies, coinciding with the downgrading of African countries’ sovereign credit ratings.
The latest report by the United Nations Development Programme (UNDP) indicates that subjectivity in credit ratings costs African countries (for which data was available) over $24 billion in excess interest and more than $46 billion in forgone lending, 20 over the life of various bonds.
This estimate of a $75 billion loss is greater than the entire Official Development Assistance (ODA) to Africa in 2021, more than twice the cost of reducing malaria by 90 per cent.
This is six times greater than the cost of vaccinating 70 per cent of Africans to achieve herd immunity to Covid-19.
At the same time, economists are pushing for the adoption of a central digital currency, which could play a transformative role in Africa's financial architecture and solid policies.
"Central banks are at the heart of financial ecosystems, and discussions around implementing a central digital currency could be pivotal for Africa’s economic development,'' Murinde said.
They believe that the currency offers a perfect solution to frequent global shocks and geopolitical uncertainties undermining the continent's growth.
