African countries are facing escalating borrowing costs and liquidity challenges due to their low credit ratings, a senior Economic Commission for Africa (ECA) official warned on Wednesday.
During her presentation at the 2024 African Economic Conference in Gaborone, Botswana, Zuzana Schwidrowski, head of the ECA’s Macroeconomic, Finance, and Governance Division, said low credit ratings are driving up borrowing costs and perpetuating a vicious cycle of liquidity challenges and debt accumulation for African countries.
Despite the prevailing challenges in credit ratings, she highlighted positive developments in certain African countries, citing Moody’s recent upgrade of Tanzania and S&P’s optimistic outlook for South Africa as examples of encouraging progress.
However, persistent double-digit inflation is hindering African central banks from lowering policy rates, contributing to high borrowing costs and stifling growth, particularly among resource (and fuel)-intensive exporters.
In her presentation on credit ratings in Africa, Sonia Essobmadje, chief of ECA’s Innovative Finance and Capital Markets Section, noted that “improving Africa’s fundamentals and implementing a structural reform programme would certainly over time contribute to better ratings, but, more importantly to sustainable, inclusive growth and the well-being of the population.”
She emphasised that prioritising the development of national and regional financial markets in Africa is essential as this would reduce excessive reliance on external debt and enhance the effectiveness of monetary policy transmission.
Misheck Mutize, lead expert on credit ratings at the African Union Commission, cautioned that excessive reliance on credit ratings could amplify market instability and lead to pro-cyclicality.
Marcus Courage, CEO of Africa Practice, stated that recent analysis from his organisation and Africa No Filter reveals that negative media narratives about the continent are costing African nations an estimated $4.2 billion annually in inflated interest on sovereign debt.
This financial burden is largely driven by international media coverage that disproportionately emphasises conflict and war, perpetuating damaging stereotypes.
MG/jn/APA