Ratings agencies, facing a barrage of criticism over the way they assess sovereign credit in Africa, have defended their methodologies — though S&P Global Ratings acknowledged it should boost its presence on the continent.
S&P Global Ratings president Yann Le Pallec said the company was confident its system was correct but it would increase its footprint in Africa to gain better insight into its economic dynamics.
“Starting a couple of years ago, we heard it loud and clear from the African community, both the states and the multilaterals, that their perception was we were not present enough on the continent, that our methodologies were a black box,” Le Pallec told reporters.
“So we are mobilising more people, more domain experts, to come to the continent regularly.”
S&P, along with the other two major ratings agencies, Fitch and Moody’s, have come under fire for their sovereign assessments. They were criticised in the Jubilee Report for 2025, commissioned by the late Pope Francis and published last month.
The report, “A Blueprint for Tackling the Debt and Development Crises and Creating the Financial Foundations for a Sustainable People-Centered Global Economy”, was compiled by 30 experts led by Nobel laureate and Columbia University professor Joseph Stiglitz.
It found that 54 developing countries spend 10% or more of their tax revenues on debt service costs, and that since 2014, the average interest burden for developing countries had almost doubled. “Interest payments on public debt are therefore crowding out critical investments in health, education, infrastructure, and climate resilience,” the report said.
Their perception was we were not present enough on the continent, that our methodologies were a black box ... so we are mobilising more people, more domain experts, to come to the continent regularly.
— Yann Le Pallec, S&P Global Ratings president
African countries’ external debt totalled $1.15-trillion (R26-trillion) by the end of 2023, according to the African Development Bank.
The Jubilee Report said that while investors needed to know the risks associated with investments, evidence of the accuracy of credit ratings agencies remained weak.
“This gives enormous power to these agencies, whose interests typically do not coincide with a broader public interest or the interests of developing countries,” the report said.
S&P Global Ratings told Business Times that it acts with objectivity and transparency and that it calls credit risks as it sees them. Its sovereign ratings apply the same methodology to all governments that are rated.
“We are subject to comprehensive regulatory oversight and regulations that govern our processes for how we develop and apply our methodologies and criteria, and require that we apply them consistently across all sovereign ratings.
“We are committed to the highest standards in our ratings activities, and our opinions and measures of risk are rooted in our deep experience.”
S&P said the correlation between the degree of development of a sovereign country and its credit rating was primarily because more advanced economies tend to display stronger levels of governance, transparency, policy predictability and flexibility.
“They also exhibit a higher wealth level as expressed by their GDP per capita, all aspects that are given strong weight in evaluating the creditworthiness of a sovereign. Due to these factors, more advanced economies tend to have higher ratings than less advanced ones.
“The amount and cost of funding investors demand at every rating level is set by the market and the risk appetite of investors, and not by credit ratings agencies. Credit ratings are just one of many inputs that investors and other market participants can consider as part of their decision-making process.”
The agency noted that Le Pallec led an S&P delegation to the UN International Conference on Financing for Development which was held in Sevilla, Spain, this past week.
A spokesperson for Fitch Ratings told Business Times that Fitch’s rating decisions were trusted by the international investor community because they were based on “independent, robust, transparent, and timely analysis”.
“All Fitch’s sovereign rating decisions are taken solely in accordance with one globally consistent and publicly available rating criteria, with rating drivers and sensitivities clearly identified in our ongoing public rating commentary.”
A Moody’s spokesperson said the agency’s “transparent, independent, and globally comparable” credit ratings measure how likely an issuer is to meet its debt obligations on time and in full.
“We stand by the performance of our credit ratings and the quality and integrity of our methodologies. Moody’s believes that market needs are best served by having access to a range of views on credit, with competition based on analytical rigour and quality.”
In a report published in May, Moody’s said the cost of debt in Sub-Saharan Africa remains a significant challenge for policymakers, as it consumes a large share of finite government revenue that could otherwise be used for development.
“In general, the interest-to-revenue ratio for sub-Saharan African sovereigns rose by about 1-2 percentage points between 2021 and 2024, weakening debt sustainability and contributing in extreme cases to defaults.”
The report said debt costs reflected factors such as the funding mix and available revenue, as sub-Saharan African sovereigns typically relied on a mix of domestic and external financing sources.
“The combination of these sources and macroeconomic and market conditions determines the overall cost of financing. High financing costs can weaken debt affordability and sustainability, particularly if governments keep borrowing to cover increasing interest payments, limiting the revenue available for economic and social development or to counter shocks.”
Adriaan Pask, chief investment officer at PSG Wealth, said ratings agencies exist to provide objective opinions of the risks associated with investing in certain countries, sectors, asset classes, and securities.
“The evaluation criteria is never perfect, but if implemented consistently, can be a useful tool for investors. Unfortunately, that also means providing reports or ratings that, in some cases, reflect poorly on some issuers of capital instruments. Yet, if the assessment methodology is fair and consistent, it is difficult to criticise the outcome.”
Pask said more thought should be given to how a more favourable assessment could be engineered by looking at the criticism in a constructive manner. He said holding on to hopes for a change in methodology among established agencies was “probably naïve”.
“Capital prices risk. Risks cannot be ignored to lower capital pricing for risky assets just because the higher pricing is inconvenient. Instead, a more realistic approach would be to reduce risk, so that a lower pay-off is objectively warranted.”
He said a separate agency, with looser standards, might draw questions about the safety of the ratings provided. The key question is whether existing agencies are missing a trick in their assessments.
Kevin Gallagher, professor of global development policy at Boston University, said some countries have strengthened their market access in Africa, diversifying and increasing their external financing mix to fund their agendas.
“In that wave, engagement with credit ratings also increased. The number of African countries rated by the three major ratings agencies increased to 31 in 2021 from only 10 in 2003. Meanwhile, the average annual credit ratings issued for African countries rose from seven between 1994 and 2007, to 37 between 2008 and 2020.”
Of the 154 rated sovereigns, 61 were downgraded by one of the three ratings agencies; middle-income countries accounted for the majority of downgraded sovereigns at 60%.
— additional reporting by BusinessLIVE
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