Addis Ababa, 3 April 2025 (ECA) - Why borrowing is so expensive for African nations is no longer just a technical debate. It is a question with billion-dollar consequences.
Imagine a scenario, as of late 2024, where Germany is able to borrow $1 billion at an interest rate of 2.29 percent. Over ten years, it pays about $229 million in interest. Zambia, borrowing the same amount but facing a much higher rate of 22.5 percent, would pay $2.25 billion.
The math is straightforward. The consequences are not.
That $2 billion gap, for a single loan, is driven not by fiscal policy or repayment history, but by perception. And in global credit markets, perception is often determined by agencies headquartered continents away.
“African countries don't control the rating agencies,” said Claver Gatete, Executive Secretary of the UN Economic Commission for Africa. Mr. Gatete explained that without a seat at the table, African nations are subject to external perceptions that often distort how their economies are assessed. These views frequently overlook the continent’s actual creditworthiness and long-term growth potential.
Africa’s total external debt is estimated at $1.1 trillion, and the continent spends roughly $163 billion annually servicing it. Yet most countries remain stuck with ratings that classify them as sub-investment grade, what investors refer to as “junk.”
Sub-investment grade ratings signal high risk to investors and lead to steeper borrowing costs. Countries spend billions more than wealthier counterparts to finance infrastructure, education, and health services.
Sonia Essombadje, Chief of Innovative Finance and Capital Markets at the ECA, said credit ratings are often misunderstood and should be seen for what they are - informed judgments, not absolute truths.
“Credit ratings are opinions,” she explained. “They combine quantitative models with qualitative interviews. It's not just numbers.”
Ms. Essombadje explained that ratings are built on both data and interpretation, often shaped by meetings with officials and assessments of a country’s economic and political outlook. That subjectivity, she said, leaves room for bias.
“You’ll notice that every time there’s a crisis, our countries are downgraded,” she added. “The process doesn’t fully assess the dynamics of African economies.”
To address those shortcomings, an Africa Credit Rating Agency (AfCRA) has been established, though it has yet to be formally launched. The goal is to produce more context-specific assessments of African economies, rooted in local political and financial realities.
“It’s about reducing the information gap between the borrower and the lender,” said McBride Nkhalamba, Acting Director of the Governance and Special Initiatives Division at the African Peer Review Mechanism (APRM).
AfCRA is not intended to replace legacy agencies like Moody’s or S&P Global, but to complement them.
“We’re not trying to change the narrative if the facts don’t support it,” said Ms Essombadje. “But we want to bring in the African perspective.”
Moody’s, for its part, says its methodology is fair and transparent.
“We ensure that our rating criteria for governments, including African countries, are transparent and fair by adhering to rigorous methodologies and processes,” said Aurélien Mali, Senior Analytical Advisor for Africa at Moody’s. “These criteria are publicly available on Moodys.com,” he added.
Despite that reassurance, many African economists argue that real-world outcomes reveal a clear disadvantage. They say the dominant agencies apply a one-size-fits-all model to economies with very different fundamentals.
To create space for more transparency and understanding, the ECA and APRM recently convened a workshop in Accra, bringing together government officials and rating agencies. Shilambwe Mwaanga from Zambia’s Ministry of Finance commented on the disconnect between African governments and the agencies that rate them.
“I’ve been involved for 15 years, but we’ve never really interacted with the rating agencies,” he said. “That dialogue was useful. There are areas where improvements are needed, like giving us more than 24 hours to respond to an initial rating decision.”
Misheck Mutize, Lead Expert on Credit Ratings at APRM, emphasized how market sentiment is often shaped by perception rather than fact. “In financial markets, it is known people don't trade in anything else but opinions. Whichever opinion is perceived as credible by investors at that particular time is what formulates the perception, as well as the sentiment on the market,” he said.
Salamatu J. Dotsey of the Bank of Ghana echoed these concerns, first critiquing the uneven standards applied in the rating process. “If you have a rating process that puts everyone on the same scale when data quality and resources vary so widely, it’s not a level playing field,” said Ms Dotsey.
She added that part of the solution lies within the continent. “We have a huge informal sector that isn’t captured in our GDP. If we improve our data quality and engage more with analysts, our ratings could improve.”
Zuzana Schwidrowski, Director of Macroeconomics, Finance and Governance at the ECA, said the establishment of AfCRA is timely.
“With growing uncertainty in advanced economies and increasing global fragmentation, an African agency that understands its context can offer a much-needed perspective,” she said.
But she also warned against overreliance on external validation.
“Rather than relying solely on the credit rating agencies, be it global or African, to convey their message to investors, African countries can also really work much harder on their own narrative and explaining to investors why it’s a great idea to invest in Africa,' she said.
For now, most African nations remain stuck paying more for less, penalized not necessarily for default, but for how they’re perceived.
Don’t forget to watch our latest episode of the Sustainable Africa Series for more on these important issues.
Issued by:
Communications Section
Economic Commission for Africa
PO Box 3001
Addis Ababa
Ethiopia
Tel: +251 11 551 5826
E-mail: eca-info@un.org