Fair rating treatment for the Global South
Changes South Africa should champion in G20 hot seat
Credit rating agencies like S&P Global and Fitch have an outsized influence on the economic fortunes of developing countries.
Credit rating agencies such as S&P Global and Fitch hold significant sway over the economic futures of developing countries. Their evaluations shape investor decisions, affect borrowing costs, and influence development paths. With official development assistance (ODA) declining, many African nations are turning to global bond markets, putting rating agencies under growing scrutiny.
These agencies assess how likely a borrower, like a country, is to repay its debt fully and on time. If they believe a country won’t meet its obligations, they assign it a ‘default’ rating, cutting it off from private financing. The threat of downgrades also discourages countries from pursuing debt relief under the G20’s recent debt treatment programme. This programme requires debt restructuring, which rating agencies often interpret as a form of default, further penalising nations seeking assistance. So far, no rated country has used the programme—a stalemate dubbed the ‘credit rating impasse’.
Reform is needed on two fronts: building up local credit rating capabilities and strengthening countries’ ability to negotiate fairly with the major agencies. South Africa’s G20 Presidency in 2024–25 offers a timely opportunity to push for more balanced reforms and highlight African-led initiatives.
The goal isn’t for every country to receive a top credit rating, but to ensure all nations can participate in the rating process fairly and knowledgeably. One bold step forward is the African Credit Rating Agency, a new body being developed by the African Union. It aims to provide more contextually relevant and fair assessments of African countries.
This agency, owned by AU member states and funded through regional support and service fees, represents a concrete move toward rating independence. However, it will face challenges—earning investor trust, securing funding, and withstanding pressure if it must issue downgrades. Nonetheless, its development is inspired by dissatisfaction with the dominance of the major agencies and mirrors regional alternatives, like China’s domestic system. Though still in progress, it stands as the most advanced Global South-led reform effort in this area.
Yet institutional development is only part of the solution. Many developing nations cannot interact effectively with the current system.
Bridging the expertise gap
It’s not surprising that Global South countries lag in credit rating expertise. While sovereign debt trading has a long history - Eurobonds emerged in 1963 - most African nations only began issuing them in the late 1990s. For now, these countries often rely on advisory teams from the investment banks arranging their bond sales. But this advice, while free, may not be truly independent.
To correct this imbalance, credit rating capacity building is essential. It would allow developing countries to better engage with agencies, understand the rating process, and advocate for their own development needs rather than just investor preferences.
Encouragingly, some efforts are already underway. The African Union’s Africa Peer Review Mechanism and the UN Economic Commission for Africa have been helping countries through technical workshops, advocacy, and regular credit rating reviews. Their work provides guidance and helps states pinpoint and address weaknesses.
In a complementary effort, the UNDP Africa and AfriCatalyst have launched the Credit Ratings Initiative. This includes a platform for shared knowledge, a panel of former rating analysts called the ‘Concilium,’ and a peer network to support learning. Early projects with East African countries show how unbiased, independent advice can improve strategic engagement with rating agencies.
These efforts highlight a key point: while systemic reform is essential, short-term practical tools can also deliver meaningful progress.
Time for SA to lead
South Africa, now leading the G20, has already proposed a ‘Cost of Capital Commission’ to investigate how financing terms affect developing countries. Part of its brief is to review credit rating practices and promote transparency.
This is a promising beginning, but South Africa can go further. It should advocate for a global credit rating capacity-building initiative—one that empowers countries to participate on equal footing and reshapes the current imbalances in the system. This aligns with Africa’s broader development goals and would establish the continent as a leader in financial reform.
More than just a technical proposal, this initiative would shift power within global finance—from reactive crisis management to proactive structural reform. With the U.S. set to take over the G20 Presidency next, South Africa has a rare opportunity to set the stage for a fairer, more balanced global financial system. – The Conversation
*Daniel Cash is a Reader in Law at Aston University.
These agencies assess how likely a borrower, like a country, is to repay its debt fully and on time. If they believe a country won’t meet its obligations, they assign it a ‘default’ rating, cutting it off from private financing. The threat of downgrades also discourages countries from pursuing debt relief under the G20’s recent debt treatment programme. This programme requires debt restructuring, which rating agencies often interpret as a form of default, further penalising nations seeking assistance. So far, no rated country has used the programme—a stalemate dubbed the ‘credit rating impasse’.
Reform is needed on two fronts: building up local credit rating capabilities and strengthening countries’ ability to negotiate fairly with the major agencies. South Africa’s G20 Presidency in 2024–25 offers a timely opportunity to push for more balanced reforms and highlight African-led initiatives.
The goal isn’t for every country to receive a top credit rating, but to ensure all nations can participate in the rating process fairly and knowledgeably. One bold step forward is the African Credit Rating Agency, a new body being developed by the African Union. It aims to provide more contextually relevant and fair assessments of African countries.
This agency, owned by AU member states and funded through regional support and service fees, represents a concrete move toward rating independence. However, it will face challenges—earning investor trust, securing funding, and withstanding pressure if it must issue downgrades. Nonetheless, its development is inspired by dissatisfaction with the dominance of the major agencies and mirrors regional alternatives, like China’s domestic system. Though still in progress, it stands as the most advanced Global South-led reform effort in this area.
Yet institutional development is only part of the solution. Many developing nations cannot interact effectively with the current system.
Bridging the expertise gap
It’s not surprising that Global South countries lag in credit rating expertise. While sovereign debt trading has a long history - Eurobonds emerged in 1963 - most African nations only began issuing them in the late 1990s. For now, these countries often rely on advisory teams from the investment banks arranging their bond sales. But this advice, while free, may not be truly independent.
To correct this imbalance, credit rating capacity building is essential. It would allow developing countries to better engage with agencies, understand the rating process, and advocate for their own development needs rather than just investor preferences.
Encouragingly, some efforts are already underway. The African Union’s Africa Peer Review Mechanism and the UN Economic Commission for Africa have been helping countries through technical workshops, advocacy, and regular credit rating reviews. Their work provides guidance and helps states pinpoint and address weaknesses.
In a complementary effort, the UNDP Africa and AfriCatalyst have launched the Credit Ratings Initiative. This includes a platform for shared knowledge, a panel of former rating analysts called the ‘Concilium,’ and a peer network to support learning. Early projects with East African countries show how unbiased, independent advice can improve strategic engagement with rating agencies.
These efforts highlight a key point: while systemic reform is essential, short-term practical tools can also deliver meaningful progress.
Time for SA to lead
South Africa, now leading the G20, has already proposed a ‘Cost of Capital Commission’ to investigate how financing terms affect developing countries. Part of its brief is to review credit rating practices and promote transparency.
This is a promising beginning, but South Africa can go further. It should advocate for a global credit rating capacity-building initiative—one that empowers countries to participate on equal footing and reshapes the current imbalances in the system. This aligns with Africa’s broader development goals and would establish the continent as a leader in financial reform.
More than just a technical proposal, this initiative would shift power within global finance—from reactive crisis management to proactive structural reform. With the U.S. set to take over the G20 Presidency next, South Africa has a rare opportunity to set the stage for a fairer, more balanced global financial system. – The Conversation
*Daniel Cash is a Reader in Law at Aston University.
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