As South Africa leads the G20 in 2024–25, it faces a critical opportunity to challenge a longstanding imbalance in the global financial system: the outsized power of credit rating agencies over the economic futures of developing countries.
With traditional development aid on the decline, more African nations are turning to global capital markets, issuing sovereign bonds to fund public services and infrastructure. But in this increasingly market-driven landscape, agencies like S&P Global, Moody’s, and Fitch wield significant influence over borrowing costs and investor confidence—often without sufficient consideration of local contexts.
“The goal isn’t for every country to receive a top-tier rating,” said one analyst involved in African credit advocacy. “It’s about ensuring that all countries can engage with the credit rating system on fair and informed terms.”
A System Under Scrutiny
The core function of credit rating agencies is to assess a debtor’s ability to repay its loans. However, critics argue that their decisions—particularly in low-income and emerging markets—can be both opaque and punitive. In recent years, threats of downgrades have deterred African nations from participating in global debt relief efforts, such as the G20’s Common Framework, for fear of being slapped with a ‘default’ rating.
This phenomenon, dubbed the “credit rating impasse”, has left a growing number of indebted countries stuck between worsening debt burdens and the risk of being locked out of global markets entirely.
Calls for change are intensifying, and South Africa’s G20 leadership has brought renewed attention to the issue.
Toward African Sovereignty in Ratings
Among the most ambitious reform efforts is the creation of the African Credit Rating Agency, an initiative spearheaded by the African Union. Designed to be regionally owned and funded, the agency aims to provide fairer, more context-sensitive assessments of African economies—offering an alternative to the often externally imposed metrics of the Big Three.
Though still in its early stages, the agency marks a significant move toward regional financial sovereignty. Yet, observers caution that it faces a steep road ahead: gaining credibility with investors, funding robust analytics, and navigating political pressure when tough assessments are required.
Similar models have emerged elsewhere, including in China, suggesting a broader trend toward regional credit ecosystems.
Filling the Expertise Gap
Another key barrier is technical capacity. Many African countries only began issuing Eurobonds in the late 1990s—decades behind their Global North counterparts. As a result, they often rely on advice from investment banks that underwrite their bonds—guidance that is not always independent.
In response, efforts to build independent credit rating expertise are gaining traction. The African Peer Review Mechanism (APRM), in collaboration with the UN Economic Commission for Africa, is providing hands-on training, advocacy support, and detailed reviews of sovereign credit trends.
The UNDP Africa and AfriCatalyst’s Credit Ratings Initiative has also launched a platform offering neutral, former ratings professionals—dubbed the “Concilium”—to advise governments. Early pilots in East Africa show promise, helping officials better understand rating criteria and strengthen their negotiations with agencies.
From Technical Tools to Global Reform
While these initiatives show immediate impact, experts stress that more systemic change is needed. South Africa has taken a first step with its Cost of Capital Commission, launched under its G20 Presidency to examine how rating methodologies and risk perceptions affect the cost of borrowing for developing countries.
But advocates say Pretoria could go further. A global capacity-building initiative, championed by South Africa and aimed at enhancing sovereign engagement with rating agencies, would not only align with the country’s development priorities but also reposition Africa as a leader in financial reform.
“This isn’t just about better ratings,” said a development economist. “It’s about shifting power—from a reactive debt system to a proactive model of financial sovereignty.”
As the United States prepares to assume the next G20 Presidency, observers say the groundwork laid by South Africa could be critical in building a coalition of the Global South and reform-minded allies seeking a fairer international financial order.