Existing Credit Rating Methodologies and African Sovereigns: The Missing Link

Credit rating agencies are critical to promote sovereign access to global financial markets, as is the process to achieving that goal. In Africa, as a major component to determine a country’s economic stability and creditworthiness, as well as the applicable cost of borrowing, the application of existing sovereign credit rating frameworks amplifies the inherent weakness. However, these methodologies often fail to recognize the peculiarities of African sovereigns, as well as the underlying operating environment and associated risk assessment. This anomaly contributes to high-risk perception, leading to poor sovereign credit ratings and associated premiums for African issuances, thereby limiting access to sustainable finance for development across the continent. This paper examines existing credit rating frameworks that rating agencies in Africa use and their implications for sovereigns, highlighting their inherent weakness in appropriately assessing risk. To better serve the needs across the continent in determining sovereign credit ratings, the paper recommends alternative methodologies that better reflect the underlining operating environment. Journal of Contemporary Issues in African Trade and Trade Finance, 9(1), 50-63