Reducing Private Sector Debt in Africa

Please join CSIS and Development Reimagined for a discussion on how African countries can work together to reduce the cost of private sector debt including through the reform of credit rating agencies and debt sustainability assessments.
African countries find themselves stuck in an international financial system that prioritizes the interests of creditor countries and perpetuates a vicious cycle of debt. Currently, African countries pay USD 130 billion annually in debt servicing costs while having large financing gaps that require new, highly concessional financing. According to the African Development Bank, the continent has a USD 402 billion annual financing gap in its goal of accelerating structural transformation by 2030, with approximately 76% of those resources only targeting road and energy infrastructure.
To address these financing gaps, African countries have explored different avenues to fund their development. Over the last two decades, the private sector has become an important development partner, providing critical financing when bilateral and multilateral funding did not suffice.
Unfortunately, private sector financing, which is the majority of African sovereign debt, has become too expensive for African countries and for many, completely inaccessible. African countries are having to counteract “African Risk Premiums”, a biased perception whereby Credit Rating Agencies (CRAs) give poor credit ratings to African countries, making borrowing more expensive and creating a perception that investing on the continent is risky. A joint report by the UNECA and the APRM in 2023 stated that despite positive economic projections on the continent, sovereign credit ratings were getting worse - with errors found in publishing ratings and a lack of understanding of the domestic environment. Furthermore, in a recent report by Development Reimagined “Africa and Eurobonds: How many Eurobonds does Africa have and how might it impact their budgets in the future?” there were only 33 African countries that had credit ratings which means that 22 African countries could not borrow from commercial markets.
CRAs also include debt sustainability assessments (DSA)-conducted by the World Bank and IMF- in their assessments which are biased against African countries for many reasons including not taking into account “positive or good” government debt and investment in areas such as infrastructure that are vital for growth and development. Apart from a reform of DSAs at the international level, African countries need to conduct their own DSAs and build in-country analysis and growth forecasting to shift the current risk perception narrative and encourage private sector involvement.
African governments also need to be supporting, the African Union, in particular, APRM with operationalizing the African Credit Rating Agency (AfCRA), an initiative that will ensure there are fair and objective sovereign credit ratings on the continent.
This event is made possible through general support to CSIS.
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