fofack4_ FADEL SENNAAFP via Getty Images_covid morocco FADEL SENNAAFP via Getty Images

Downgrading Africa’s Development

During the COVID-19 pandemic, more than 60% of African sovereigns have suffered credit-rating downgrades that risk exacerbating the immediate crisis. Ratings agencies should instead pursue a more balanced approach that accounts for increases in credit risk without undermining developing countries’ economic prospects.

CAIRO – In 2020, the COVID-19 pandemic triggered Africa’s first recession in a quarter-century and, with it, an avalanche of sovereign credit-rating downgrades across the region. Eighteen of the 32 African countries rated by at least one of the “big three” agencies – Fitch Ratings, Moody’s, and S&P Global Ratings – suffered downgrades that risk exacerbating the immediate crisis. Moreover, the ratings agencies’ actions could undermine the longer-term structural transformations needed to reduce these economies’ unhealthy commodity dependence.

Fifty-six percent of rated African countries were downgraded last year – significantly above the global average of 31.8% and the averages in other regions (45% in the Americas, 28% in Asia, and 9% in Europe). The share of affected African sovereigns is even higher (62.5%) if we include the two (Kenya and Mauritius) downgraded in the first half of 2021. The glut of downgrades has been accompanied by a torrent of negative reviews of African countries’ ratings outlooks. Between them, the three agencies revised downward the outlook of 17 sovereigns – four from positive to stable and 13 from stable to negative.

The significance of these large-scale downgrades extends far beyond their number. Botswana, Mauritius, Morocco, and South Africa had long enjoyed investment-grade status. But last year’s downgrades of Morocco and South Africa to “junk” status mean that Africa will emerge from the pandemic with more than 93% of its sovereigns rated below investment grade, which could trigger disproportionately negative “cliff effects.”

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