No Fitch, Moody's or S&P, please: The Big 3 face a new challenge

Africa has finally turned its long-running complaint against the world’s dominant credit rating agencies into an institutional challenge. The African Union launched the Africa Credit Rating Agency (AfCRA) in Mauritius on October 7, promising assessments that better reflect the continent’s economic realities.

The grievance is familiar in India, where policymakers have argued for years that global ratings fail to recognise improvements in economic fundamentals. Yet building an alternative is easier than persuading investors to trust it.

A grievance turns into an institution


The launch follows years of African governments accusing Moody’s, S&P Global and Fitch of imposing an unjustified risk premium on the continent. African officials argue that the agencies rely too heavily on conventional indicators while overlooking local conditions, including informal economic activity, domestic savings and the capacity to withstand external shocks.

Also Read | Can India build its own Big Four? The battle moves to the rulebook

Denys Denya, executive vice-president of Afreximbank, one of AfCRA’s backers, told Reuters that when lenders cannot see clearly, they charge for the uncertainty. Africa, he argued, continues to pay for the fog created by Western-centric assessments.

The financial consequences are substantial. A 2023 UN Development Programme report estimated that rating-related disadvantages cost African countries $74.5 billion in excess interest payments and foregone borrowing. The African Union says the continent’s annual external debt service climbed to $163 billion in 2024 from $61 billion in 2010. Average African sovereign ratings remain around B to B-minus, compared with BB for other emerging regions.

These figures do not establish that ratings alone caused Africa’s borrowing difficulties. Debt levels, foreign-exchange shortages, political instability and default histories matter too. But ratings influence the price and availability of capital, making the quality of the assessment economically consequential.

Also Read | India's growth story not recognised by global rating agencies: Piyush Goyal

Better information is the strongest case for AfCRA

The agency’s most defensible purpose is not to award African countries higher ratings simply because existing ratings look harsh. It is to produce more complete assessments of their ability to repay debt.

The scale of the information gap is striking. According to the Financial Times, the African Union estimates that less than a quarter of the continent’s roughly $4 trillion capital base is covered by credit ratings. At the end of 2025, Africa had fewer than 4,000 ratings, compared with 823,000 in the European Union and more than two million in the US. Twenty-three African economies lack ratings from the Big Three, Reuters reported.

AfCRA could help develop domestic debt markets by assessing borrowers who currently receive little coverage. The agency may concentrate on local-currency sovereign and corporate debt, where demand for ratings could be more substantial than in the relatively small market for African governments’ foreign-currency bonds.

Misheck Mutize, one of AfCRA’s architects and its lead expert on credit ratings, told the FT that the institution should help deepen African capital markets and direct funds towards infrastructure, energy and manufacturing. Better information can help domestic pension funds, banks and other investors assess longer-term investments rather than keeping their money in short-term government bills.

However, more ratings will not automatically mean cheaper credit. Their value depends on whether investors believe they accurately distinguish stronger borrowers from weaker ones.

The credibility test

This is where AfCRA faces its biggest challenge. If its assessments consistently place African borrowers above the ratings assigned by Moody’s, S&P and Fitch, investors will want to know whether it has identified overlooked strengths or simply adopted a more generous standard.

Dennis Shen, a lecturer in finance at the International School of Management in Berlin and a former sovereign analyst at Scope Ratings, told Reuters that a new agency begins with a promise but investors ultimately demand a track record. Its credibility, he warned, would be tested most severely during market stress, when its conclusions might be inconvenient.

Former Nigerian vice-president Yemi Osinbajo told Reuters that AfCRA must meet global standards and cannot become merely a nationalistic agency.

In 2022, Moody’s downgraded Ghana from B3 to Caa1, indicating a substantially higher risk of default. Ghana’s finance ministry accused the agency of institutionalised bias, arguing that it had overlooked fiscal consolidation and relied on an analyst who had not visited the country. But soon after, Ghana defaulted on much of its external debt. Ghana's default does not settle every dispute over Moody’s methodology, but it demonstrates why an agency cannot dismiss unfavourable assessments simply as evidence of bias.

The broader research is not entirely reassuring to either side. The FT cited Torsten Schmidt of Germany’s Leibniz Institute for Economic Research, who estimates that African sovereigns are rated about one notch lower on average because of bias. That is meaningful but does not explain why many countries remain deep in speculative-grade territory.

AfCRA must therefore disclose its methodology, explain its assumptions and protect analysts from political pressure. Its independence will need to be demonstrated through decisions, particularly when a government objects to a downgrade. The FT reported that the AU intends the agency to have no government ownership to limit conflicts of interest.

India’s experience of the Big 3

India has long made a similar argument that the Big 3 recognise its economic strengths but are reluctant to translate them into higher sovereign ratings. The Economic Survey of 2020-21 devoted an entire chapter to asking whether India’s ratings reflected its fundamentals. Its conclusion was that they did not, pointing to the country’s growth, external resilience and political stability as evidence of an unusually conservative assessment.

The debate acquired fresh significance when Japan Credit Rating Agency upgraded India to A- last month, restoring an A-category rating after more than 35 years. This followed upgrades by Morningstar DBRS, S&P and Japan’s R&I in 2025. Yet Moody’s and Fitch remain at the lowest investment-grade level, while S&P’s upgrade last year was its first since 2007.

India’s complaint is not without substance. In the past two decades, the economy has expanded rapidly, foreign-exchange reserves provide a buffer against external shocks and its banking system has become healthier. The government’s fiscal deficit has also fallen sharply from its pandemic peak. Deutsche Bank’s Kaushik Das has argued, in a recent column in ET, that India’s predominantly rupee-denominated public debt and relatively low external debt reduce its vulnerability compared with countries dependent on foreign-currency borrowing.

But the agencies have a counterargument. Fitch has highlighted India’s high public debt and interest burden, alongside per-capita income that remains low relative to highly rated economies. Rapid growth improves repayment capacity, but does not erase fiscal constraints. India’s experience therefore illustrates both the limitations of ratings that may underweight structural improvements and the issue of treating growth alone as proof of creditworthiness.

Sovereign ratings also have consequences beyond government borrowing. S&P’s upgrade of India in 2025 was followed by upgrades for seven banks and three finance companies. A stronger sovereign rating can improve access to international capital for domestic companies and financial institutions, although the actual effect on borrowing costs depends on market conditions.

The BRICS idea faces the same credibility problem

The push for a BRICS credit rating agency emerged from similar frustrations with the dominance of Western firms in assessing emerging economies. India too has backed the idea as a way to make ratings more responsive to developing countries’ circumstances. Yet the proposal has made little progress.

The underlying difficulty is the same one now confronting AfCRA. An agency established by countries dissatisfied with their ratings will struggle to convince investors unless it can demonstrate that its assessments are independent of those countries’ political interests.

Neither AfCRA nor a prospective BRICS agency can compel investors to accept its ratings. That acceptance has to be earned through transparent methods, comparable standards and a record of getting difficult calls right.