The African Development Bank (AfDB) is set to launch an initiative aimed at improving sovereign credit ratings in African countries. By strengthening economic data, transparency, and market information, the bank hopes to reduce borrowing costs across the continent. AfDB President, Sidi Ould Tah, made this announcement at the S&P Emerging Markets Conference in London. He emphasized that gaps in data and weak market infrastructure contribute to perceptions of higher risk in African economies.
According to Tah, the initiative will be implemented through the African Legal Support Facility (ALSF). The ALSF will help governments prepare for sovereign credit assessments and improve the quality of information available to international credit rating agencies. Tah noted that the lack of data and infrastructure, as well as opacity in some markets, create a notion of high risk, leading to high borrowing costs. This, in turn, makes it more expensive for African economies to access capital.
The AfDB initiative aims to address information gaps that influence how African economies are assessed by international rating agencies. By improving the quality and availability of economic data, the bank hopes to change perceptions of risk in African economies. Currently, only three of Africa’s 54 countries have investment-grade ratings. This has significant implications for their access to international capital markets and investor sentiment.
The AfDB’s move is separate from efforts by African institutions to establish a continent-wide credit rating agency. The African Peer Review Mechanism, an African Union-backed initiative, plans to launch an Africa-wide ratings agency. This move is partly in response to concerns over the cost of borrowing. President Bola Tinubu had previously advocated for the creation of an Africa-owned credit rating agency.
Tinubu argued that borrowing costs for African economies often do not adequately reflect their economic conditions. He also noted that ratings by Fitch Ratings, Moody’s, and S&P Global Ratings have significant influence on African countries’ access to international capital markets and investor sentiment. The AfDB’s initiative is a step towards addressing these concerns.
Beyond credit ratings, the AfDB is also working to strengthen domestic financing and capital markets. The bank has engaged stakeholders, including pension funds and banks, to identify and address obstacles limiting the development of stronger domestic capital markets. This effort aims to increase resource mobilisation within Africa and strengthen the ability of African economies to mobilise local funding.
The AfDB’s broader financing efforts are aimed at developing stronger domestic capital markets and expanding access to local funding. While the new credit-rating initiative focuses on better data and transparency to support sovereign assessments, the bank’s overall goal is to reduce borrowing costs and increase access to capital for African economies.
Key points
- The African Development Bank to launch initiative to improve sovereign credit ratings in Africa.
- Only three of Africa’s 54 countries currently have investment-grade ratings.
- The AfDB is also working to strengthen domestic financing and capital markets.
