SA’s historic G20 presidency, culminating in this weekend’s summit, has put the global financial architecture under the microscope, calling for an independent review of the IMF and urging a rethink of how the world prices Africa.
An SA G20 Africa expert panel report, handed to President Cyril Ramaphosa on Tuesday, recommends that a borrowers’ club be established to strengthen the collective voice of borrowers and co-ordinate peer learning, technical assistance and research.
The panel is also calling for improved regulation of the powerful credit ratings as the African continent grapples with “distorted perceptions of risks” bleeding billions of US dollars into debt servicing costs across the continent.
“Difficult reforms are required to transform the global financial architecture. All nations benefit from a rules-based system of global finance, where financial safety nets are fair and dependable,” the Africa expert panel commented.
“Given the IMF’s significance for financial stability and development on the African continent, and the continued absence of an effective African voice in the fund, the panel suggests an independent review of the IMF.”
Pretoria’s calls to reform the IMF and credit rating oversight — the very arbiters that determine how costly it is for governments to borrow — slot into the broader foreign policy narrative.
Alongside the expanding Brics bloc, SA’s calls are a multipolar play, attempting to reshape rules that treat global power as distributed among states, not dominated by a single superpower.
The panel, chaired by former SA finance minister Trevor Manuel, also observed that returns on investments in Africa often exceeded those in developed economies, but “investors are deterred by regulatory barriers and distorted perceptions of risk”. It called for changes in this regard.
“Credit ratings agencies (CRA) hold considerable power to shape borrowing costs and must be held accountable. The G20 can help ensure ratings agencies’ methods are sound, their sources fully disclosed and their actions subject to regulatory oversight.
“Improve the regulation of CRAs by ensuring full disclosure of rating assessment data and reforming their methodologies that recognise economic diversity and avoid procyclical rating actions.”
The panel is also calling for the launch of a new G20 debt refinancing initiative for low-income and vulnerable countries.
This year, African countries will pay almost $89bn in external debt service alone, with 20 low-income countries at risk of debt distress.
According to G20 documents, more than half of Africa’s 1.56-billion people live in countries that spend more on interest payments than on social issues such as health, education and infrastructure.
The high debt levels are unsustainable and undermine efforts toward sustainable development and poverty alleviation.
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The expert panel, comprising 26 members, said there was a need to build a multilateral sovereign debt resolution mechanism that was transparent, timely and effective.
It called for the inclusion of middle-income countries in the G20 common framework to “enable automatic debt standstills, accelerate negotiations and ensure fair burden-sharing among all creditors”.
The panel also called for accelerated implementation of the African Continental Free Trade Agreement (AfCFTA) as a core platform for African integration and investment, and empowerment of pan-African, regional and national development finance institutions to complement national strategies and capitalise African direct foreign investments with the resources necessary to scale up investment
The report was released on the day Sim Tshabalala, CEO of Standard Bank, Africa’s largest lender by assets, called out ratings agencies, saying SA is paying about R50bn a year in additional debt service costs due to the “scandalous” risk premium placed on the country’s sovereign by ratings agencies.
The exposure to government debt of Standard Bank SA (SBSA) amounts to about 13% of the lender’s R2-trillion assets in its biggest market, with Moody’s in July saying the group’s high exposure to domestic sovereign debt makes the company’s credit profile interlinked with that of the state.
In essence, the lender has about R272bn exposure directly and indirectly to SA’s multitrillion-rand debt pile, making it one of the biggest financiers of government and state-owned companies.
Tshabalala, who presides over a group with a presence in 21 African countries, told the Bloomberg Africa Business Summit in Joburg that ratings agencies have been unfair to African states.
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“It is actually scandalous. There is no other way to put it…. Take a country like Ivory Coast, which is rated similarly to Serbia, [but] its debt is priced 50 basis points more than Serbia,” Tshabalala said on Tuesday.
“On the data, SA should be rated by the ratings agencies at BBB. Generally, African sovereigns are rated at about four rungs lower than they ought to be,” he said.
“In the case of SA, the additional cost is about R50bn a year. That’s scandalous and ought to change.”
S&P last week upgraded SA’s foreign currency rating to BB from BB-, moving it two notches below investment grade.
Tshabalala also challenged African states to improve their investor relations activities and have more transparent budget regimes.
SA has made the high cost of capital one of its G20 focus areas, amid perceptions that ratings agencies and international investors impose an unjustified “Africa risk premium” that makes it costly for African countries to borrow on the market.
A 2023 study by the Africa Practice reveals the continent could be losing up to $4.2bn in interest payments on its loans, primarily because of this inflated risk assessment.
A report commissioned by the late Pope Francis called for the reform of private credit ratings agencies, saying they exert “outsized influence on sovereign debt dynamics”.
The Vatican report was authored by the Jubilee Commission, which includes a group of 30 experts such as Nobel laureate and Columbia University Prof Joseph Stiglitz, former Argentinian economy minister Martín Guzmán and Haruhiko Kuroda, a former Bank of Japan governor.
The Vatican-backed report also calls for the reform of the IMF and other multilateral institutions, urging these bodies to end the approach of promoting austerity to maximise the repayment of external debt.
“IMF-supported programmes have often emphasised import compression and fiscal austerity in times of recession,” reads the report, published in July. “These policies may generate foreign exchange in the short term but undermine long-term development and recovery.”
With Lindiwe Tsobo
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