In the financial world, a credit rating is supposed to be an objective score. In reality, these ratings are often clouded by what many spectators perceive as bias. Africa frequently pays a ‘reputation tax’, often referred to as the Africa premium, which makes borrowing unnecessarily expensive. This isn’t just a technicality; it drains tens of billions of dollars from the continent, which could be spent elsewhere.
An earlier Finance in Africa analysis revealed that only three African nations were rated investment grade in 2025 by the dominant “Big Three” global agencies: Moody’s, Standard & Poor’s, and Fitch. This is despite strong growth projections from the IMF, resulting in the brewing argument that Africa’s credit story is mispriced.
This has fuelled a major institutional effort: the creation of an African Credit Rating Agency (AfCRA), expected to begin operations in 2026, aimed at addressing the shortcomings in how risk is measured for African issuers.
But before assessing what comes next, it’s worth understanding what’s at stake.
Misperception and its economic cost
Credit ratings influence borrowing costs directly. Lower ratings trigger higher yields; higher yields mean more expensive financing. When a sovereign is placed in “speculative” rather than “investment-grade” territory, a broad set of institutional investors, from pension funds to insurers, are effectively locked out of participating, or are only able to do so at a steep cost.
In 2025, the OECD Africa Capital Markets Report stated that around 80% of rated African sovereigns are high-risk, and only a tiny fraction, consistently Botswana and Mauritius, achieves investment-grade status. The implication remains that markets demand higher yields to compensate for perceived danger.
In essence, when this happens, Africa has to pay more. Data from IPI Global Observatory revealed that, in 2024, African countries paid roughly 9% interest on dollar-denominated bonds, the highest rate of any emerging region. By comparison, regions with similar economic health paid far less: Latin America averaged 6.5%, while emerging Asia paid only 4.7%.
These elevated yields translate directly into higher debt servicing costs. In a continent where external repayments are projected to exceed $90 billion in 2026, according to Reuters, even a 1% premium inflates the total burden by billions, money that governments could otherwise channel into health, education, or infrastructure.
A widely-cited 2023 United Nations Development Programme (UNDP) report also highlighted idiosyncrasies in global rating practices, notably subjective judgments about political risk and institutional strength, cost African countries an estimated $75 billion a year in excess interest and lost lending opportunities.
Other research places similar figures in context. A Brookings analysis suggests that subjectivity in ratings has resulted in over $24 billion in excess interest paid and more than $46 billion in forgone lending for rated African sovereigns over the life of various debt instruments. These numbers, when combined, echo the broader $75 billion UNDP estimate.
The Brookings commentary further shows that the $75 billion loss estimate exceeds the entire Official Development Assistance (ODA) to Africa in 2021 ($30 billion) and is much greater than (more than twice) the cost for 90% of malaria reduction ($34 billion) for the continent.
The market disconnect between ratings, risk, and reality
What fuels this disconnect?
Quantitative factors like debt levels, GDP growth, foreign reserves, coupled with qualitative judgments about governance and political stability, constitute the system of global ratings. But now, the argument from critics is that these qualitative components are particularly vulnerable to bias when analysts are located far from the economies they assess.
According to an UNCTAD report, Credit Rating Agencies, Developing Countries and Bias, several indications point at the propensity of foreign credit rating agencies, especially the Big Three, to be biased in their credit assessments of developing countries across Africa.
“the ratings process has historically tended to favour developed countries over developing ones, and that this bias took various forms, including: home bias, bias designed to preserve the market power of the commercial rating agencies, bias arising from differences in how indicators used in rating scorecards are applied and interpreted, and bias arising from differences in the marginal impacts on ratings that changes in indicators give rise to, ” the report stated.
As evidence of this, Ian Richards, a digital and AI expert for governments, shared an experience: “Moody’s, S&P and Fitch [seem to be] biased against developing countries. But banks may already know this. Last year I tried to buy Tunisian government dollar bonds. Six months from maturity, they were showing as having traded at a 13% discount. And yet despite the triple C rating, public data showed the central bank’s foreign exchange reserves to be ample and finances in relatively good shape. So I knew this was a good deal. But they were no longer being traded. Word was that Bank of America had already spotted the opportunity and swooped in to buy it all up.”
Fitch, Moody’s, and S&P control about 95% of the ratings market. Their global models often rely on sparse data and broad regional proxy indicators rather than detailed, country-specific analysis. As a result, countries with similar economic fundamentals can receive markedly different assessments when market perception, influenced by historical stereotypes or external shocks, becomes a dominant signal.
Case snapshots, costs accrued
Recent examples serve to further contextualise the problem:
Afreximbank
Afreximbank’s 2025 downgrade by Moody’s (Baa1 to Baa2, with stable outlook) and Fitch (‘BB+’ (junk status) from ‘BBB-) illustrates how sensitive African institutions are to credit ratings.
The pan-African financial institution acts as a vital bridge between international capital and African trade. When it was downgraded in 2025, that bridge became more expensive to maintain. Because the bank now faces higher interest rates and less investor interest, it is forced to pass those costs along to the African countries and corporations that rely on its financial support.
Senegal
In late 2025, S&P Global lowered Senegal’s credit rating to CCC+ from B- due to rising debt. This downgrade pushes the country deeper into ‘risky’ territory, making it much more expensive to borrow. It also makes it harder for Senegal to return to the global markets at a time when finding affordable loans is already a challenge.
Ghana
Ghana’s 2022 debt crisis began with successive downgrades by major agencies like Moody’s (B3 to Caa1) and S&P (B-/B to CCC+/C), eventually pushing its rating into ‘deep junk’ territory. By December 2022, the country was forced to suspend payments on most of its $13 billion in Eurobonds. This effectively locked Ghana out of global markets, with yields on its remaining debt spiking to over 20%.
The impact was felt heavily at home: domestic banks faced massive losses, and the Bank of Ghana reported a staggering GH¢60.8 billion ($5.54 billion) loss in 2022 alone due to the debt restructuring.
These cases all show the same pattern: credit ratings don’t just describe a country’s financial health; they actively influence it. A downgrade acts like an accelerant. It drives up interest rates and scares away big investors at the exact moment a government needs affordable financing and breathing room to fix its economy. Instead of helping a country stabilize, the rating often tightens the squeeze.
AfCRA: The promise and the challenge
The African Credit Rating Agency, championed by African leaders including Nigeria’s President Bola Ahmed Tinubu, is not yet operational as of early 2026. Its proposed launch was slated for September 2025 and is intended to tilt the informational balance by providing credit assessments grounded in African economic realities rather than distant assessments. According to AU reports, AfCRA is in the final stages of establishment. But its timelines keep shifting and its first sovereign ratings expected in early 2026 is already looking uncertain. However, optimism remains high.
Supporters believe AfCRA can bridge the gap between reputation and reality if it masters four areas:
- Better Data: Using real-time information.
- Local Context: Accounting for Africa’s unique economic strengths.
- Independence: Proving its analysis is free from outside influence.
- Trust: Earning a solid reputation with global investors. If it hits these marks, the agency could finally align Africa’s borrowing costs with its true economic health.”
Nigeria, for example, has pointed out that rating agencies often respond slowly to reforms, a disconnect AfCRA hopes to address. As President Tinubu puts it, even as Nigeria’s bonds were oversubscribed by investors in 2025, its sovereign ratings lagged behind market sentiment.
“Better data has been partly responsible for Nigeria’s recent upgrades: improving the timeliness and breadth of economic statistics…Even so, Nigeria’s ratings still lag behind reforms and market sentiment. Our November dollar-denominated bonds were oversubscribed 5.5 times. Slow upward adjustments are commonplace across Africa, especially when set against the speed of downgrades,” he said.
However, as noble and timely as AfCRA is, one major challenge must be anticipated and addressed. Reliable and timely data across the continent is uneven, and creating a new ratings institution that global investors trust, especially institutional investors bound by risk mandates, will be a difficult task.
Another challenge is the ongoing speculation that creating a credit rating agency for Africa will elicit a similar bias that it accuses the Big Three of, only this time a favourable bias. The concern is that African sovereigns might be given undue upward ratings which do not reflect their economic strength or realities.
According to Misheck Mutize, lead expert on credit rating agencies at the African Peer Review Mechanism (APRM), however, “It is important to debunk the assumption that AfCRA is being established to give favourable ratings to Africa, no. We will issue downgrades where necessary.”
According to Mutize, African governments will have no control over AfCRA, to maintain credibility and prevent political interference. “[AfCRA] was designed to maintain independence and avoid conflict of interest. Shareholding will mainly be African private-sector driven entities,” he said.
The goal: Better risk assessment
An African credit agency isn’t a magic fix, but it is a necessary one. It won’t instantly rewrite the rules of global finance, but it can bridge the gap between how the world sees Africa and how Africa actually is. By aligning perception with reality, the continent can finally unlock cheaper capital and take back control of its financial future.
In the end, we don’t just need a new agency; we need a way of measuring risk that is as dynamic as the economies it rates. Only then will Africa’s growth be priced fairly.
N.B: Figures originally reported in Ghanaian cedi and converted using the average exchange rate of GH¢11/ $1 as of Friday, February 20, 2026.
