President William Ruto has announced that Africa has established the Africa Credit Rating Agency (AfCRA).

Ruto said the organ is set to end what he described as flawed and biased models that are used in ascertaining the creditworthiness of African countries.

Africa Credit Rating Agency

“By relying on flawed models, outdated assumptions, and systemic bias, these agencies have painted an unfair picture of our economies, leading to distorted ratings, exaggerated risks, and unjustifiably high borrowing costs.

The establishment of an Africa Credit Rating Agency, backed by credible data that accurately reflects Africa’s reality, will unlock the much-needed finance to fund the continent’s development programmes and bring meaningful change to the people.”

The president made the remarks at the margins of the upcoming African Union Summit in Addis Ababa.

Previously, the president had also faulted CRBs in Kenya for harsh ratings that had locked out many Kenyans from accessing loans. According to the president, plans were afoot to introduce a system where lenders can use Hustler Fund credit scores to allocate loans to Kenyans.

Uproar after Moody’s credit of Kenya

Ruto’s remarks came a few weeks after Moody’s, a global provider of credit ratings, revised Kenya’s outlook from negative to positive. Moody’s cited the increasing likelihood of Kenya’s liquidity risks easing, debt affordability improving over time, and declining domestic financing costs.

In 2024, Moody’s published a negative outlook, a move that caused uproar from political and economic pundits, who termed it unfair and inaccurate.

According to Bloomberg, biased rating cost Africa over Ksh 9.7 trillion.

A report by UNDP titled Reducing Cost Financing Africa stated that African countries were paying a premium in borrowing costs of 2.9 percentage points more than what the macroeconomic fundamentals and current credit ratings suggest.

The report further argued that credit rating downgrades have direct macroeconomic impacts for African borrowers.

“A downgrade can result in limited access to international capital markets and higher borrowing costs, preventing developing nations from implementing sufficient macroeconomic and public policy measures.

This creates a threat to their fragile economies and exacerbates existing problems of underdevelopment. Developing economies have been significantly impacted by the recent sharp downgrades of their credit ratings, resulting in higher borrowing costs, increased risks of debt sustainability, and competition for limited capital,” the report reads.

According to the National Treasury, Kenya’s public debt stood at Ksh 10.59 trillion as of June 2024, a figure pundits believe would be lower with fairer credit ratings and buoyed by the Kenya shilling appreciating against the US dollar since mid-2024. Out of the Ksh 10.59 trillion debt, Ksh 5.4 trillion is domestic.

The Moody’s positive ranking was followed by an announcement by the Central Bank of Kenya that it lowered the benchmark rate to 10.75%. The rate has slowly been dropping since July 2024, where it stood at 13%.

The regulator has, however, accused banks of doing little in easing the cost of credit despite the CBR declining.