AfDB moves to help African countries improve credit ratings, cut borrowing costs

The African Development Bank (AfDB) has announced plans to launch an initiative aimed at helping African countries enhance their credit ratings and reduce borrowing costs, according to AfDB President Sidi Ould Tah. Speaking at the S&P emerging markets conference in London, Tah explained that gaps in economic data and market infrastructure contribute to perceptions of higher risk, which in turn lead to increased borrowing costs for African nations.

The initiative will be carried out through the African Legal Support Facility and will focus on improving the quality and availability of economic data, as well as increasing transparency. By addressing these information gaps, the AfDB hopes to better prepare governments for credit assessments and provide more reliable information to ratings agencies.

Currently, only three out of Africa's 54 countries hold investment grade credit ratings. Tah emphasized that improving credit ratings is a shared goal across the continent, noting that the AfDB initiative will leverage the African Legal Support Facility to assist countries in preparing for ratings through better data management and greater transparency.

This move comes amid persistent concerns among African leaders about the high costs associated with accessing international capital and the factors that influence sovereign risk assessments. The AfDB's initiative is distinct from efforts by African institutions to establish a continent-wide credit rating agency, with the African Peer Review Mechanism planning to launch such an agency this month.

Nigerian President Bola Tinubu recently advocated for the creation of an Africa-owned credit rating agency, citing the "Africa premium" - the difference between perceived and actual risk - as a key factor driving higher borrowing costs for African countries. Tinubu also highlighted the significant influence of assessments by Fitch Ratings, Moody’s, and S&P Global Ratings on African nations' access to global capital markets and investor sentiment.

The AfDB is concurrently working to bolster local financing and capital markets across the continent as part of its broader strategy to increase domestic resource mobilization. Tah revealed that the bank has engaged various stakeholders, including pension funds and banks, to identify and overcome obstacles to the development of stronger domestic capital markets.

The credit-rating initiative, therefore, will concentrate on enhancing data and transparency to support sovereign assessments, while the bank's broader financing efforts aim to strengthen domestic capital markets.