The United Nations Development Programme (UNDP) recently organized a meeting in Washington, DC, during the 2023 World Bank/IMF Spring Meetings. The meeting, attended by African ministers, development actors, and research institutes, focused on the impact of credit ratings on the cost of development finance in Africa.

The UNDP study, titled “Lowering the Costs of Borrowing in Africa – The Role of Sovereign Credit Ratings,” was the highlight of the event. It revealed that African countries could save up to $74.5 billion if credit ratings were based on less subjective assessments. This, in turn, would enable them to repay their debt and free up funds for investment in human capital and infrastructure development.

Currently, subjective credit ratings increase the cost of servicing debt and put cash-strapped countries in a difficult position. Borrowing from capital markets to finance economic development is necessary, especially as Official Development Assistance (ODA) flows have been shrinking in recent years. However, this becomes challenging when countries have to choose between repaying debt and feeding their population.

H.E. Oulimata Sarr, Minister of Economy, Planning, and Cooperation, Republic of Senegal, called for reform and a change in the way sovereign credit ratings are determined. African governments need more fairness and justice in the way multilateral agencies are conceptualised to meet development aspirations and a system where risk can be fairly priced.

African countries, with their development partners, can take immediate steps to address sovereign credit rating idiosyncrasies in partnership with global rating agencies. The UNDP, the Africa Growth Initiative at the Brookings Institution, and AfriCatalyst announced the creation of a bespoke database of key macroeconomic indicators and a new Concilium of high-level advisors to support African countries during the sovereign credit rating process.