High borrowing costs continue to weigh on Africa’s development, increasing debt-servicing pressures and leaving governments with fewer resources for public investment. African sovereigns pay an average interest rate of 9.8% on international bond markets, compared with 7.1% in Latin America and 5.5% in Asia (UNCTAD). The resulting risk premium is estimated to cost the continent US$74 billion annually in excess interest payments and foregone financing.
At different times, the Minister of Finance for Nigeria, Taiwo Oyedele, Henry Musasazi of Uganda, and Sheku Bangura of Sierra Leone have argued against punishing interest yields of between 11% and 14% for Africa compared to just 4% to 5% for emerging economies in Asia. As the Chair of the G24, a group of global south economies, Oyedele described the gap as a “prejudice premium” at the just concluded annual meetings of the International Monetary Fund (IMF) and the World Bank.
In response to the lingering concerns, the African Union and its partners launched the Africa Credit Rating Agency (AfCRA) in Port Louis, Mauritius, in October 2026. By bringing more local data and context into credit assessments, AfCRA aims to improve how African sovereign risk is evaluated. The key question is whether better-informed ratings can help bring down Africa’s long-term borrowing costs and free up resources for development.
Africa’s Borrowing-Cost Problem
African governments’ greater need for commercial borrowing have come on the back of declining Overseas Development Assistance to Sub Saharan Africa (SSA). According to the Organisation for Economic Cooperation and Development (OECD), ODA is expected to decline by 6.9% this year, estimated at $152 billion, lowest level since 2014, after a 23.3% and 8.5% drop in 2025 and 2024, respectively.
However, this often comes at higher interest rates and exposes governments to currency and refinancing risks, especially as higher global interest rates increase refinancing costs, often shaped by credit ratings. For instance, the United Nations Development Programme (UNDP) estimates that rating-related factors cost African countries US$74.5 billion annually: US$ 50 billion in foregone financing. While this highlights the potential cost of how sovereign risk is assessed, it does not attribute the entire amount to credit rating agencies.
Borrowing costs also reflect fiscal deficits, foreign-exchange constraints and debt sustainability. However, incomplete data or assessments that overlook country-specific conditions may distort perceptions of risk. Better-informed ratings could help investors distinguish between borrowers more accurately, though lower borrowing costs would also depend on countries’ underlying economic and fiscal conditions.
How Credit Ratings Shape Borrowing Costs
While many other rating agencies exist, some for the reason AfCRA was set up, S&P Global Ratings, Moody’s Ratings and Fitch Ratings dominate sovereign ratings. Their assessments range from high-grade ratings, associated with lower credit risk, to speculative-grade ratings, which signal a greater risk of default. The investment-grade threshold is BBB− for S&P and Fitch, and Baa3 for Moody’s. Falling below this threshold can restrict access to institutional investors whose mandates limit holdings of lower-rated debt.
The chart above shows how sovereign bond spreads rise sharply as credit ratings decline. Investment-grade ratings (AAA to BBB–) attract relatively modest risk premiums of between 0.7% and 1.5%. Once a country falls into speculative territory, the cost of borrowing escalates quickly — reaching 3% at BB– 5.5% at B, and over 10% at CCC. For African economies, many of which sit in the lower rating bands, this premium translates directly into higher debt-service costs and reduced fiscal space for development spending.
At the end of 2025, three – Botswana, Mauritius, and Morocco – covered in S&P Global Ratings’ review held investment- grade ratings. One challenge in assessing African economies is that official statistics do not always capture the full extent of economic activity. The IMF estimated that the informal economy accounted for 38% of sub-Saharan Africa’s GDP and 60% of non-agricultural employment between 2010 and 2014. Much of this activity supports livelihoods and production, but may be underrepresented in the data used to assess economic performance. However, a large informal economy does not automatically translate into public revenue. The OECD reports an average tax-to-GDP ratio of 15.6% across Africa, compared with 34% in OECD countries. Limited revenue mobilisation can constrain governments’ ability to service debt, while fiscal deficits, foreign-exchange shortages and debt sustainability also shape creditworthiness. These factors influence borrowing costs alongside how effectively credit ratings capture the economic conditions of individual countries.
AfCRA could help address some information gaps by incorporating more local data and context into
sovereign assessments. Its impact will depend on whether its methodology, governance and operational independence earn investors’ confidence. A different rating alone will not guarantee cheaper borrowing; AfCRA must provide credible assessments that influence how investors price sovereign risk.
Gaps in Western Credit Ratings of African Sovereigns and
AfCRA’s Proposed Role
The debate over African sovereign ratings centres on three gaps: limited country-specific data, gaps in rating coverage, and concerns about how rating decisions affect countries during periods of financial distress. First, country-specific economic conditions may not be fully captured in existing assessments. AfCRA aims to incorporate more local data and regional expertise into its analysis, giving greater consideration to the structure of African economies and their financing conditions.
Second, rating coverage remains limited. African countries and other borrowers without ratings may face additional challenges in attracting investors who rely on formal credit assessments. AfCRA intends to extend coverage to unrated sovereigns and, potentially, sub-sovereign entities and businesses, broadening the pool of borrowers with independently assessed credit profiles.
Third, debt-relief episodes have raised concerns about the consequences of rating decisions during crises. AfCRA offers an opportunity to develop assessments informed by African debt markets and policy conditions, while maintaining rigorous evaluation of repayment risks. AfCRA’s impact will ultimately depend on whether investors trust its ratings and use them to make lending decisions. If its assessments are credible and widely adopted, they could improve access to financing and help reduce borrowing costs for some African countries.
Can AfCRA Earn Investor Confidence?
AfCRA’s ability to lower Africa’s borrowing costs will depend not only on the quality of its ratings but also on whether investors trust and use them. Four factors will shape its prospects. First, institutional independence will be essential to building investor trust. AfCRA needs transparent
governance and safeguards against political interference to ensure that ratings reflect borrowers’
creditworthiness rather than government preferences. Second, methodological credibility will determine whether investors find AfCRA’s assessments useful. Its ratings must be supported by reliable data, consistent criteria and transparent analysis that can withstand scrutiny from market participants. Third, regulatory recognition and market adoption will shape the agency’s reach. Adoption by African pension funds, commercial banks and other financial institutions could support its credibility, but limited recognition among international investors may constrain its influence on global bond pricing. Fourth, underlying economic conditions will continue to determine borrowing costs. High public debt, fiscal deficits, foreign-exchange shortages and short domestic debt maturities can increase repayment and refinancing risks regardless of the rating agency involved. AfCRA may improve how these risks are assessed, but reducing borrowing costs will also require stronger fiscal positions and more sustainable debt management.
Will AfCRA Make Borrowing Cheaper for Africa?
AfCRA’s impact should be measured by whether it improves access to financing and helps reduce
borrowing costs over time. Key indicators include changes in sovereign bond spreads relative to
comparable countries, the availability and cost of longer-term local-currency financing, adoption of
AfCRA ratings by African and international investors, and improved access to capital for previously
unrated borrowers. These indicators should be tracked over five to ten years, accounting for changes in global interest rates, fiscal performance and debt sustainability to distinguish AfCRA’s contribution from wider economic developments.
Conclusion: Can AfCRA Make Borrowing Cheaper for Africa?
AfCRA is not an immediate solution to Africa’s high borrowing costs. International investors will continue to consider currency volatility, foreign-exchange reserves, debt sustainability and global interest rates when pricing sovereign debt. However, credible and independent ratings could improve access to financing for countries and borrowers that are currently unrated. By strengthening local credit markets and encouraging greater participation by domestic institutional investors, AfCRA could help expand long-term local-currency financing and reduce reliance on foreign-currency debt. AfCRA’s ultimate contribution will depend on whether investors trust its assessments and whether African economies can translate improved access to credit into more sustainable borrowing.
