Bad perception of ratings costs 75 billion dollars a year to Africa

“ Ogovernments pay more to be indebted, investment becomes more difficult to attract, the scale of the burden is increasing, and estimates suggest that the risk premium costs more than 75 billion dollars [67 billion euros] in excessive interest, which differs from the already scarce resources of development priorities such as health, education and infrastructure,” said Hanan Morsy.

At the launch ceremony of the new African rating agency (AfCRA), the vice-leader of UNECA highlighted the importance of the ratings awarded by financial rating agencies when they analyze the ability of a country or company to pay to its private creditors.

“ The ‘ratings’ also shape political choices; during the pandemic, concerns about a fall prevented countries from asking for a suspension of debt service, so when governments hesitate to use an international mechanism because of the possible consequences on ‘rating’, this shows us the need to reassess the way risks are calculated,” Hanan Morsy said.

For this economist, the launch of the AfCRA, this afternoon in Port Louis, in Mauritius, where the seat of the new entity will be, is an “opportunity to extend the information and prospects available to investors.”.

The new agency, defended, brings closeness, knowledge of local institutions and familiarity with reform programs to measures that are implemented.

And these are “important comparative advantages” compared to traditional agencies, which operate from the United States, Europe or Asia, with little deployment in Africa, he said.

At the ceremony, which also featured representatives of the Pair Review Mechanism (UN), the African Bank for Exports and Imports and the African Union's own leader, the idea was transversal that the new agency should not favour African countries, otherwise it would fail to test credibility.

“ The goal is not to have a preferential treatment, but rather to have more precision, transparency, better context in the assessment of credit risk and to give more knowledge and perspectives for the general context of ratings, promoting more fairness in the analysis ", synthesized Morsy.

Attribution of ratings has been under discussion at international meetings on African finances, mainly because of its connection with the financing capacity of the countries of the region in international markets, since many investors, mainly institutional, anchor their investment decisions in these assessments to countries.

The new agency, launched today, is “impulsed by the private sector, self-financed and independent,” and cannot be held by governments, says the AU, calling that “governance structures privilege transparency, credibility and safeguards against conflicts of interest.”.

Among the advantages, the AU points out that for governments, the agency can bring “fairer financing conditions and better access to capital markets”, while for investors it will be possible to have “balanced and specific analyses in the context of African risk”.

The cost of financing African countries on international markets is one of the main issues under discussion, not only because of its high value, but because of its impact on countries' economies, as governments, with limited resources, often have to choose between paying debt interest or investing in economic development.

“What is at stake is significant: Africa’s foreign debt service increased from USD 61 billion [54.5 billion] in 2010 to USD 163 billion [145 billion] in 2024, with interest payments exceeding public health or education expenditure in most countries,” the AU insisted.