Chorus against credit rating firms amid calls for African alternative

President William Ruto rarely minces on what he thinks of global credit rating agencies.

He has insisted that Kenya—and Africa at large—needs a credit agency that understands the continent’s financial context.

He argues that African nations face exorbitant borrowing costs that fail to consider the uniqueness of their economies.

His sentiments have been echoed by African leaders, including African Development Bank (AfDB) President Dr Akinwumi Adesina, during the 59th AfDB Annual Meeting in Nairobi in June 2024.

However, when Moody’s, one of the major global credit rating agencies, recently revised Kenya’s outlook from negative to positive, Ruto welcomed the move with enthusiasm, posting on social media: “We are doing well.”

Shortly after, the African Peer Review Mechanism (APRM), an African Union monitoring body, criticised Moody’s revision, reinforcing calls for a continental credit rating agency.

APRM questioned the agency’s swift upgrade, arguing that moving from a negative to a positive outlook—skipping stable—was highly unusual.

It viewed the shift as an admission that Moody’s initial downgrade in July 2024 had been incorrect, as it was based on protests over Kenya’s proposed Finance Bill rather than a full financial assessment. APRM also pointed out that this was not the first time Moody’s had acted prematurely, citing a similar case in Nigeria. In January 2023, Moody’s downgraded Nigeria’s rating from B3 to Caa1, predicting fiscal deterioration under a new administration.

However, in December 2023, the agency reversed its outlook to positive, acknowledging economic policy improvements—factors that had been present when the downgrade was issued.

The AU body condemned such actions as irresponsible, arguing they lead to unnecessary borrowing costs, Eurobond sell-offs, and negative investor sentiment toward African economies.

“Moody’s should wait for complete term review data before issuing ratings instead of making speculative and premature decisions,” APRM stated.

Despite calls for an African credit rating agency, some experts remain sceptical. Prof Samuel Nyandemo, a senior economics lecturer at the University of Nairobi, dismissed the idea, warning it could lead to “mediocrity.”

He insisted that African nations should adhere to globally recognised financial standards rather than creating their own. “We must be rated by international benchmarks, not shield ourselves under substandard measurements,” he argued.

At the AfDB Annual Meeting, President Ruto described the global financial system as “rigid, misaligned, and a barrier to Africa’s development.”

He criticised high interest rates on African loans, citing “risk profiling” as arbitrary. “It is safe to mine minerals in conflict zones, yet risky to lend to African economies. What a contradiction,” he remarked. He also cited Kenya’s negative profiling, noting that borrowing costs were increased due to instability in Niger—a country far from Kenya.

Dr Adesina backed the push for an African credit agency, arguing that a homegrown institution would better assess Africa’s market, financial, and political risks. “If Africa were rated fairly, we would save $75 billion (Sh9.6 trillion) annually in debt service,” he noted.

However, the Overseas Development Institute questioned how such an agency would be funded. It pointed out that the African Union relies heavily on donors—mainly the European Union.