COLUMN: THE CLIFF. Pricing Africa fairly: Ratings, liquidity and reform

IN Nairobi, the syndicate line goes quiet. Traders mark up a new Kenya 2033 bond seventy basis points wider than guidance, citing a ratings overhang. It is a script African debt managers know: A whisper of downgrade risk, a ripple in liquidity and the sovereign’s cost of borrowing jumps.

The question is whether the continent is paying more than fundamentals warrant, or whether global credit markets simply do not know how to price African risk.

The starting point is scale and timing. After a near-freeze in 2022–2023, sub-Saharan Africa returned to international markets in 2024 and raised more than 13 billion US dollars in Eurobonds.

That reopening was led by Ivory Coast’s 2.6 billion US dollars dual-tranche deal, combining a nine-year sustainable bond and a thirteen-year conventional bond. The order books showed that demand still exists when narratives are credible and execution is disciplined. At the same time, coupons reminded everyone that the global rate environment had shifted: Access had improved, but the price of access remained elevated. Price formation still hinges on labels.

Three agencies— Moody’s, S&P and Fitch dominate the rulebooks embedded in prospectuses, collateral frameworks and index eligibility.

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When a rating moves, mandates kick in and the buyer base can shrink overnight. In Africa’s thinner markets, that mechanical effect often overwhelms the fundamentals of any single issuer. Policymakers have therefore questioned whether sovereign models overweight political-event risk, underweight reform momentum and rely on statistics that trail reality.

The United Nations Development Programme popularised a headline figure to frame the stakes: Up to 74.5 billion US dollars in potential savings if ratings relied less on subjective inputs and if lower perceived risk unlocked additional lending.

It is a scenario, not a tally of realised losses, but it clarifies the upside of better measurement. Cross-section evidence points to a wedge between ratings and spreads.

Plot spreads against rating notches and African names often sit above peers with similar scores. Some of that premium is structural and stems from local market plumbing. Moody’s places the median interest rate on African local-currency government debt near 12 per cent, compared with roughly 8 per cent in Latin America and 5.5 per cent in Asian emerging markets.

Elevated domestic yields reflect shallow savings pools, a limited base of long-tenor buyers and liquidity premia. In that setting, every ratings scare moves prices more than the same headline would in deeper markets elsewhere. Debt arithmetic amplifies the sensitivity.

Public debt in sub-Saharan Africa averages about 61 to 62 per cent of GDP in 2025, with the median country spending a little over 12 per cent of revenue on interest. Those ratios have eased from immediate post-pandemic peaks but remain well above pre-Covid baselines.

When interest costs are already high relative to revenue, the compounding effect of even small spread changes becomes material.

Ten or twenty basis points saved on a new issue can translate quickly into fiscal space, while the same amount added can force difficult budget choices. Local investor depth is improving but remains a binding constraint. Kenya’s pension assets climbed to roughly 2.25 trillion Kenyan shillings in 2024—around the mid-teens as a share of GDP after a decade of steady growth.

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Nigeria’s pension assets stood near 8.0 per cent of GDP over the same period. These are meaningful pools by regional standards, yet still small relative to funding needs. When offshore investors step back, local markets struggle to absorb sovereign supply at stable prices and spreads move in jumps rather than glides.

Recent defaults have also cast a long shadow and mechanically fed rating actions. Ghana and Zambia have made tangible progress post-default, with Ghana upgraded to B- in June 2025 after normalising relations with external creditors, while Zambia advanced through the common framework to restructure official and bondholder claims. Ethiopia, by contrast, missed its Eurobond coupon in late 2023 and slid into restricted default on foreigncurrency obligations.

These episodes matter because they trigger mandate-driven selling and widen spreads far beyond the informational content of the event itself, especially in thin secondary markets. Against this backdrop, the African Union and partners are moving to stand up a homegrown credit rater.

The Africa Credit Rating Agency ( AfCRA), is being operationalised with an initial emphasis on local-currency issuers and on building pipelines of timely, high-frequency data from treasuries, statistics offices and central banks. The value proposition is twofold: Methodologies that weigh fiscal anchors, reform execution and climate vulnerability with greater nuance; and an information channel that narrows the lag between policy change and market perception.

Yet the decisive question is adoption. For hard-currency paper in particular, global rulesetters—index providers, regulators and large asset managers must decide whether AfCRA’s opinions count in mandates. That decision will turn on governance independence, methodology transparency and a verifiable track record.

The empirical literature urges nuance in the bias debate. Several analyses find that once you control for fundamentals and governance, any systematic “Africa penalty” is smaller than political rhetoric suggests. That does not invalidate perceptions of unfairness; it simply shifts the near-term policy lever toward fundamentals, disclosure and market structure.

In practice, it means the most reliable way to compress spreads is to improve what investors can see and trust while experimenting with complementary reforms such as AfCRA. So, what moves pricing in the next issuance cycle? Better data is the fastest win.

When debt management offices publish quarterly bulletins disclosing currency and maturity profiles, contingent liabilities and the trajectory of interest-to-revenue ratios, investors price off facts rather than conjecture. Credible fiscal anchors and medium-term debt strategies reduce the perceived probability of adverse rating action.

Deeper local savings via pension reform, insurance investment rules that lengthen duration and market-making incentives that support twoway quotes can tame the liquidity premium that magnifies ratings news. The macro backdrop helps as well: Growth around 4.0 per cent in 2025, if paired with disinflation, means each incremental reduction in spreads buys measurable fiscal room.

Success can show up within a year if reforms move together: Primary-market concessions drop 25–50 basis points, bid-ask spreads tighten 10–20 basis points, average maturities extend by about two years without higher coupons and rating dispersion narrows as methods and data converge.

The backdrop is tougher: External public debt already exceeds 1 trillion US dollars and the financing gap could top 400 billion US dollars by 2030—far beyond what any new agency can close alone. A credible AfCRA, matched with transparent data, steadier fiscal rules and deeper local savings, can lower risk premia for the right reasons; fair pricing will follow from better inputs, not rhetoric.