African Nations Push for Comprehensive G20 Oversight of Credit Rating Agencies Amid Borrowing Cost Concerns

A high-level panel of financial experts and economists has issued a compelling call for the Group of 20 (G20) major economies to significantly strengthen their oversight and regulation of global credit rating agencies, following mounting evidence that these institutions employ methodologically flawed assessment frameworks that systematically disadvantage African governments and artificially inflate their borrowing costs in international capital markets.

The expert panel, which was convened and operates under the auspices of South Africa’s G20 presidency, has produced a comprehensive report that levels serious accusations against the world’s dominant credit rating agencies, alleging that these powerful financial institutions consistently demonstrate what the panel characterizes as systematic “perception biases” in their risk assessment methodologies. These biases, according to the panel’s findings, lead to African nations being assigned significantly lower credit ratings compared to countries in other global regions that possess similar or even less favorable economic fundamentals, fiscal positions, and debt sustainability metrics.

Build the future you deserve. Get started with our top-tier Online courses: ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Let Serrari Ed guide your path to success. Enroll today.

The Impact of Credit Rating Disparities on African Economies

The implications of these allegedly biased credit ratings extend far beyond mere numerical scores on financial reports. When credit rating agencies such as Standard & Poor’s, Moody’s, and Fitch Ratings assign lower ratings to African sovereigns, these assessments directly translate into higher borrowing costs for African governments seeking to raise capital in international bond markets. This creates a cascading effect that severely constrains the fiscal capacity of African nations to invest in critical infrastructure projects, social programs, healthcare systems, and educational initiatives that are essential for long-term economic development and poverty reduction.

The panel’s research indicates that African countries frequently pay interest rate premiums ranging from 200 to 400 basis points higher than comparably positioned nations in other regions, solely due to credit rating disparities that appear to be driven more by continental location and historical perceptions than by objective economic data. According to research from the United Nations Development Programme, African countries pay on average 1.5 percentage points more in interest than other nations with similar economic features, costing the continent over $75 billion in excessive borrowing costs—resources that could have funded hospitals, classrooms, or climate adaptation projects.

Calls for Enhanced Transparency and Accountability

In their detailed report, which was formally submitted to G20 leadership ahead of the upcoming G20 Leaders’ Summit in Johannesburg, the expert panel has outlined a series of specific recommendations aimed at fundamentally reforming the global credit rating system. Central to these recommendations is a demand for dramatically enhanced transparency regarding the proprietary data sources, analytical models, and methodological assumptions that credit rating agencies employ when assessing sovereign creditworthiness.

The panel argues that the current system operates with insufficient oversight and accountability, allowing rating agencies to make consequential judgments that affect entire national economies without being required to fully disclose or justify the specific factors and weightings that drive their rating decisions. This opacity, the experts contend, enables subjective biases and questionable assumptions to influence ratings without adequate scrutiny from independent observers, affected governments, or international regulatory bodies.

The call for transparency extends to demanding that rating agencies provide detailed explanations for rating actions, particularly when African countries receive downgrades or maintain lower ratings despite demonstrating improved economic performance, successful fiscal consolidation efforts, or the implementation of structural reforms. The panel specifically criticizes instances where African nations have been penalized with rating downgrades for factors such as political transitions or regional security concerns, while countries in other regions facing comparable or more severe challenges have not experienced similar rating actions.

Reforming Assessment Frameworks for African Economies

Beyond transparency measures, the expert panel has proposed a comprehensive overhaul of the fundamental frameworks and criteria that credit rating agencies use when evaluating African sovereign debt. The current methodologies, according to the panel’s analysis, fail to adequately capture the unique characteristics, resilience factors, and growth trajectories that distinguish African economies from those in other developing regions and emerging markets.

The panel points to several specific areas where current rating methodologies appear to systematically undervalue African economic potential and overstate risks. These include inadequate consideration of the African Continental Free Trade Area (AfCFTA), which connects 1.4 billion people across 54 countries into a single market and offers African nations a pathway to scale up intra-African trade, diversify export bases, and build economic resilience against global commodity shocks.

Additionally, the experts argue that rating agencies insufficiently recognize the impact of recent improvements in governance standards, the expansion of regional economic integration, and the growing diversification of African economies away from commodity dependence toward manufacturing, services, and technology sectors. These structural transformations, while clearly visible in economic data and development indicators, appear to be inadequately reflected in credit rating decisions.

According to analysis from the Brookings Institution, rating analysts from global agencies often do not even visit the countries in question, meaning that sovereign credit ratings of African countries frequently deviate from what the limited data would otherwise suggest. This lack of on-the-ground presence contributes to assessments that are disconnected from national realities.

The African Union’s Independent Rating Initiative

Recognizing that reforming established international rating agencies may prove challenging despite the panel’s recommendations, African institutions are simultaneously pursuing an alternative approach through the development of indigenous assessment capabilities. The African Union announced in February 2025 the establishment of the African Credit Rating Agency (AfCRA), with a target launch date of June 2025.

This proposed continental rating agency would be designed specifically to evaluate African sovereign and corporate debt using methodologies that are explicitly tailored to reflect the economic realities, development contexts, and risk profiles unique to African markets. The initiative aims to provide international investors and African governments with an alternative source of credit analysis that incorporates deeper regional expertise, more nuanced understanding of local conditions, and assessment frameworks that properly weight both challenges and opportunities present in African economies.

Kenya’s President William Ruto, speaking at the African Union launch event, declared that “global credit rating agencies have not only dealt us a bad hand, they have also deliberately failed Africa. They rely on flawed models, outdated assumptions, and systemic bias, painting an unfair picture of our economies and leading to distorted ratings, exaggerated risks, and unjustifiably high borrowing costs.”

Proponents of the African rating agency initiative argue that such an institution would not only provide more accurate risk assessments but would also introduce healthy competition into a global credit rating market that has long been dominated by a small number of Western-based agencies. According to reports from the Ecofin Agency, AfCRA will be privately owned by private sector actors across the continent to ensure independence and prevent conflicts of interest, with the African Peer Review Mechanism serving as a strategic partner.

However, the success of an African credit rating agency will depend critically on establishing credibility and acceptance among international investors, who have historically placed primary reliance on ratings from the established “Big Three” agencies. Building this credibility will require substantial investment in analytical capabilities, transparent methodologies, and a demonstrated track record of accurate risk assessment that gains the confidence of global capital markets.

One decision can change your entire career. Take that step with our Online courses in ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Join Serrari Ed and start building your brighter future today.

The Broader Context of African Debt Challenges

The expert panel’s call for credit rating reform occurs against a backdrop of mounting debt challenges facing African nations, with numerous countries experiencing severe fiscal strain in the aftermath of the COVID-19 pandemic, the global economic disruptions caused by Russia’s invasion of Ukraine, and the impact of rising interest rates imposed by major central banks in their efforts to combat inflation.

According to data from the World Bank, nine African countries entered 2024 in debt distress, with another 15 at high risk of distress and 14 more categorized as moderate risk. The situation has been exacerbated by the fact that many African countries have seen their borrowing costs spike dramatically as global financial conditions have tightened, with some nations effectively locked out of international capital markets due to prohibitively high interest rates demanded by investors who rely heavily on credit rating assessments when making allocation decisions.

Research from the United Nations Economic Commission for Africa illustrates the stark disparities in borrowing costs: while Germany can borrow $1 billion at an interest rate of 2.29 percent, paying about $229 million in interest over ten years, Zambia borrowing the same amount faces a rate of 22.5 percent and would pay $2.25 billion. That $2 billion gap for a single loan is driven not by fiscal policy or repayment history, but by perception shaped by agencies headquartered continents away.

The panel argues that if credit rating methodologies were reformed to provide more accurate and less biased assessments of African sovereign creditworthiness, many countries could access capital markets at more reasonable costs, reducing their debt burdens and freeing up fiscal resources for productive investments. This could create a virtuous cycle where improved access to affordable financing enables stronger economic performance, which in turn supports better credit profiles and further improvements in borrowing terms.

International Support and Implementation Challenges

While the expert panel’s recommendations have received supportive statements from various quarters, including development finance institutions and some G20 member states, implementing meaningful reform of the global credit rating system faces significant practical and political obstacles. The major credit rating agencies are private sector entities subject to limited direct governmental control, and they have historically resisted external calls for methodological changes, arguing that their analytical independence is essential to maintaining credibility with investors.

Moreover, the concentrated structure of the credit rating industry, where three agencies control approximately 95% of the global market, creates limited competitive pressure for voluntary reform. According to analysis from AfriCatalyst, the dominance of the “Big Three” agencies means that even when institutions like Afreximbank receive triple-A ratings from Chinese or South African agencies, it is the Fitch rating that everyone discusses and that ultimately matters in international capital markets.

Nevertheless, proponents of reform point to precedents such as the regulatory changes implemented after credit rating agencies’ failures in the lead-up to the 2008 financial crisis, when these agencies assigned favorable ratings to mortgage-backed securities that subsequently defaulted in massive numbers. Those episodes demonstrated both the systemic importance of credit ratings and the potential consequences of flawed methodologies, ultimately leading to enhanced regulatory frameworks in the United States and Europe.

South Africa’s G20 Presidency and Reform Efforts

South Africa’s G20 presidency, which runs from December 2024 through November 2025, operates under the theme “Solidarity, Equality and Sustainability.” The presidency has made addressing the cost of capital for developing economies one of its stated priorities, proposing the establishment of a Cost of Capital Commission to deliver a comprehensive expert review on issues impacting borrowing costs for developing economies.

However, according to recent analysis, South Africa’s G20 presidency has not fully utilized this platform to advance credit rating reform. The proposed Cost of Capital Commission has not yet been established, and engagements on credit rating reform have been limited. This represents a missed opportunity, as South Africa itself has experienced the sharp consequences of credit rating decisions, with a series of downgrades over the past eight years pushing the country’s debt deep into “junk” status and raising borrowing costs significantly.

The G20 Finance Ministers and Central Bank Governors meeting held in Cape Town in February 2025 failed to reach consensus on an outcome document, suggesting the challenges ahead for achieving meaningful reforms. Nevertheless, the G20 remains the key global forum where both major advanced economies and influential developing economies sit together, giving the chair power to shape agendas, working groups, and communiqués that influence global discourse.

The Path Forward for African Financial Sovereignty

As G20 leaders prepare to consider the expert panel’s recommendations at the November 2025 summit in Johannesburg, the international community faces a critical decision about whether to maintain the status quo or embrace meaningful reforms to address the systematic challenges facing African nations in global credit markets.

The stakes extend beyond mere technical adjustments to rating methodologies. At their core, these reforms represent questions about financial sovereignty, economic justice, and the ability of African nations to chart their own development paths without being constrained by assessments that many view as reflecting outdated colonial-era assumptions rather than contemporary economic realities.

Recent meetings convened by the United Nations Economic Commission for Africa and the African Peer Review Mechanism have brought together government officials and rating agencies to foster dialogue and mutual understanding. Participants have noted the value of these exchanges, with some government officials commenting that they had been involved in debt management for 15 years without substantial interaction with rating agencies until these recent initiatives.

The establishment of AfCRA represents a bold step toward greater African financial autonomy, but its ultimate success will depend on building credibility with international investors while maintaining methodological rigor and transparency. The agency must navigate what some analysts describe as a “catch-22”: if it rates African countries lower than the Big Three, African governments will be dissatisfied; if it rates them higher, investors may dismiss it as biased; and if it produces the same ratings, questions will arise about its added value.

Implications for Global Development

The broader implications of credit rating reform extend beyond Africa to questions about how the international financial architecture can better serve developing economies globally. The panel’s recommendations align with growing calls for reform of multilateral development banks, international financial institutions, and the global debt restructuring framework to make these systems more responsive to the needs of low- and middle-income countries.

Experts have noted that improving Africa’s credit ratings by just one notch could unlock $15.5 billion in additional funding for the continent, resources that could replace a significant portion of official development assistance and enable countries to invest in their own development priorities. This underscores the high stakes involved in ensuring that credit rating methodologies accurately reflect economic realities rather than perpetuating biases that constrain development financing.

The coming months will reveal whether the G20, under South Africa’s leadership, can move beyond symbolic gestures to concrete reforms that address the fundamental inequities in how African economies are assessed and rated. For millions of Africans whose access to healthcare, education, infrastructure, and economic opportunities depends on their governments’ ability to secure affordable financing, the outcome of these deliberations could prove transformative.

As experts from the Atlantic Council observe, the development community should treat credit ratings as a development emergency, mobilizing support and reform with the same urgency as a health or climate crisis. Because at the heart of every rating is a story not just of numbers, but of people and their right to health, dignity, and opportunity.

The international community now faces a choice: continue with a system that many African leaders view as perpetuating colonial-era power dynamics and constraining the continent’s development potential, or embrace reforms that could lead to a more equitable global financial architecture that serves the interests of all nations, not just the world’s wealthiest economies.

Ready to take your career to the next level? Join our Online courses: ACCA, HESI A2, ATI TEAS 7 , HESI EXIT  , NCLEX – RN and NCLEX – PN, Financial Literacy!🌟 Dive into a world of opportunities and empower yourself for success. Explore more at Serrari Ed and start your exciting journey today! ✨

Track GDP, Inflation and Central Bank rates for top African markets with Serrari’s comparator tool.

See today’s Treasury bonds and Money market funds movement across financial service providers in Kenya, using Serrari’s comparator tools.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

19th November, 2025