Africa’s Borrowing Costs are too High: The G20’s Missed Opportunity to Reform Rating Agencies
One of the commitments the South African presidency of the G20 made in its policy priorities document at the beginning of 2025 was to push for fairer, more transparent sovereign credit ratings. And to address the high cost of capital caused by an illusive perception of high risk in developing economies.
South Africa proposed to establish a commission to look into the cost of capital. In particular, to investigate the issues that impair the ability of low- and middle-income countries to access sufficient, affordable and predictable flows of capital to finance their development.
For many in Africa, this was more than a bureaucratic statement. It represented the first real chance for countries in the global south to challenge the entrenched power of international credit rating agencies through the G20. Through the influence of their opinions, Moody’s, S&P Global Ratings and Fitch Ratings are at the centre of driving the high cost of borrowing in Africa.
But the window of opportunity for advances to be made on this are narrowing. The South African government and the country’s business community have not used the opportunity provided by the G20 presidency to press for reforms that could reduce Africa’s borrowing costs and strengthen its financial sovereignty.
Why credit ratings matter so much
Credit rating agencies are not neutral observers of financial markets. Their judgements directly shape investor sentiment, access to finance and the interest rates countries pay when issuing bonds.
For developing countries, especially in Africa, ratings determine whether a government spends its scarce resources on debt servicing or on development needs such as schools and hospitals.
The problem is not just the ratings themselves but the inaccuracy and subjectivity of how they are determined.
Developing economies have frequently complained about several rating challenges.
First, African countries are more likely to be given rating downgrades that aren’t supported by economic fundamentals than countries in other regions.
Second, subjective risk factors are applied by pessimistic rating analysts who are based outside the continent.
Third, developing economies are penalised on the basis of the speculative impact of external shocks such as global pandemics or climate-related disasters.
Lastly, there are significant variations in the weights allocated to risk factors in Africa compared to peer countries with relatively similar risk profiles in Asia and Latin America.
A missed leadership opportunity
The G20 remains the key global forum where both the major advanced economies and the most influential developing economies sit together. As chair, South Africa has the power to shape the agenda, shape working groups and drive communiqués that influence global discourse.
But so far, the proposed cost of capital commission has not been established. It is fair to assert that South Africa’s G20 presidency has not used this platform to redress the cost of capital issue. Its engagements on credit rating reform have been limited to reiterating talking points. There’s no evidence of structured proposals dedicated to the issue.
This inaction is surprising given that South Africa itself is no stranger to the sharp end of credit rating decisions. In the past eight years, a series of downgrades by the international rating agencies pushed the country’s debt deep into “junk” status. These decisions have raised borrowing costs and dented investor confidence. Pretoria therefore has both experience and legitimacy to lead a reform conversation on sovereign ratings.
In addition, South Africa’s corporate and financial sector – its banks, insurers and institutional investors – have remained largely on the sidelines.
Platforms such as the Cost of Capital Summit, convened by the Business (B20) working group, Standard Bank, Africa Practice and the African Peer Review Mechanism, were useful. But South Africa’s business community has failed to seize its country’s G20 presidency as a lever to press for reforms that would benefit not only domestic firms but also African partners.
Lower sovereign borrowing costs in host countries, for example, would directly reduce macroeconomic risks for South African corporates operating across the continent and expand their investment opportunities.
What could have been done
Three concrete steps could bring the issue of credit rating reform back onto the agenda.
- Mainstream credit ratings in the G20 technical task force agenda. Its Communique should clearly reflect that ratings are the gatekeepers of capital by determining borrowing costs, shaping investor sentiments and ultimately determining how much fiscal room governments will have to finance development.
- Recognise and champion the Africa Credit Rating Agency (AfCRA) as one of the mechanisms to address cost of capital in Africa. The African Union has already endorsed the establishment of a continental agency to complement global credit rating agencies. South Africa should use the G20 platform to raise the initiative’s profile, attract technical support and encourage global investors to consider its assessments.
- Champion regulatory accountability for credit rating activities in Africa by ensuring licensing, supervision and alignment with global best practices. At the same time, leading the call for Africa’s full participation in international standard-setting bodies such as the International Organization of Securities Commissions. These frameworks underpin the regulation of global financial architecture. This requires securing Africa’s voice in the formulation of these standards. It also requires pushing for a tangible institutional presence on the continent and the permanent deployment of analysts in Africa.
The cost of inaction
According to UNCTAD, developing countries pay interest rates up to three percentage points higher than peers with similar fundamentals, amounting to billions of dollars annually in excess costs.
This “hidden tax” on development has direct human consequences. Fewer resources for infrastructure, climate adaptation, health systems and education. For Africa, where financing needs are immense, more accurate credit ratings could unlock vital fiscal space.
South Africa cannot afford to let its G20 presidency drift into symbolism. The promise of “fairer, more transparent” sovereign credit ratings must be translated into action, through task forces, communiqués and alliances that advance reform.
Pretoria also needs its business sector to step up. This is not only a moral imperative. It’s also an economic one.
Lower risk premium and fairer access to capital will expand opportunities across the continent, including for South African investors. The world is watching. If South Africa fails to lead, it will confirm suspicions that rhetoric about reforming the global financial architecture is little more than lip service. If it seizes the moment, however, it could leave a legacy far greater than its own domestic struggles. The beginning of a fairer, more accountable system of sovereign credit ratings for the global south.
