Sovereign credit ratings and external debt in Africa | Brookings

After stabilizing their macro indicators by the turn of the century, many African countries sought external financing for critical investments in infrastructure and technology that were necessary for growth and vital to the attainment of their development aspirations. Unfortunately, their access to global financial markets was stymied: At that time, only one African country, South Africa, had a sovereign credit rating.¹ To address this, UNDP partnered with S&P in 2003 to support credit ratings for viable African countries. Since then, 34 African countries have been rated and 21 countries have raised $155 billion Eurobonds.²

The effects of access to global capital markets

In the early 2000s, some observers were concerned that providing African countries with credit ratings would signal “market readiness.” They opined that access to global capital markets could result in excessive borrowing that would undo debt relief efforts under the IMF and World Bank’s HIPC and MDRI frameworks.³ Thus, in the present day one may ask: Has Africa’s access to more non-concessional lending via ratings precipitated or worsened Africa’s debt crises?

First, it is important to note, as documented in previous Brookings research,⁴ that African countries need to borrow for a number of reasons. For instance, they do not earn enough from their exports and their capital investment needs exceed potential revenue streams (even when we assume zero corruption). Moreover, unlike in 2000 when 70% of the continent was categorized as low-income, thereby enabling them to access concessional development financing, in 2025, half of the continent is middle-income and must rely more heavily on commercial sources to finance its development.⁵ Additionally, aid flows to African countries have dipped in recent years, declining by 15% between 2020-23.⁶ Against this backdrop, credit ratings play a uniquely important role in determining Africa’s access to affordable financing.

Unlike other regions that have multiple data points to assess risk, the dearth of relevant and reliable data in Africa means that credit ratings play an outsized role in determining risk perceptions.⁷ UNDP estimated that 16 African countries pay more in debt servicing costs than they should because credit ratings are lower than they could be. The total estimated resulting loss is over $74 billion,⁸ exacerbating Africa’s debt service stress. While credit ratings are not the only reason Africa’s borrowing costs are so high, there is no doubt that they play a central role as a benchmark signaling indicator.

As of end October 2025, only three of the rated 34 African countries are rated as investment grade.⁹ Thus, borrowing for most of the continent attracts a premium (for the non-investment grade countries) or punitive rates (for the 38% of the continent that is unrated).¹⁰ Moreover, this elevated cost of borrowing is often misaligned with the region’s actual financial potential. For example, at 2.6%, default rates on infrastructure investments in Africa are among the lowest in the world.¹¹ Costly financing is also causing a slowdown in Africa’s gross capital formation, which is far below the average of 33% for middle-income countries.¹² Yet Africa must invest more if it is to grow. Investment delayed could be development denied.

Pathways to improve Africa’s sovereign credit ratings

Targeted and consistent efforts to improve credit ratings for African countries could be transformative and help Africa finance its development without being burdened with unsustainable debt. Such efforts could free up much-needed fiscal space by reducing borrowing costs and increase the size and quality of investment flows. Furthermore, the credit ratings process could help establish conditions for improved economic governance. However, getting this right requires concerted and coordinated efforts by the credit ratings agencies and African countries.