African countries, including Nigeria, are losing an estimated $74.5 billion every year because of what the United Nations describes as inaccurate and incomplete sovereign credit ratings that increase borrowing costs and limit access to financing.

The warning was issued by the United Nations Office of the Special Adviser on Africa (OSAA) ahead of the official launch of the Africa Credit Rating Agency (AfCRA) in Port Louis, Mauritius.

The proposed agency is expected to provide independent credit assessments of African governments, sub-national authorities, companies and institutions using data and economic realities specific to the continent.

According to the UN, Africa’s borrowing costs remain among the highest globally despite the continent’s relatively strong record of sovereign debt repayment.

The organisation said existing credit rating approaches often fail to adequately capture Africa’s economic resilience, growth opportunities and structural realities.

“Africa’s actual default rate is far lower than what its credit ratings imply, yet the continent pays the highest cost of capital in the world,” the UN said.

The UN described the financial burden as a major obstacle to development, arguing that excessive risk premiums reduce funds available for infrastructure, healthcare, education and economic transformation.

Nigeria Raises Concerns Over Sovereign Risk Ratings

Nigeria has repeatedly questioned the methodology used by international credit rating agencies, arguing that African economies are often assessed using assumptions that do not fully reflect domestic realities.

During a special meeting of the United Nations Economic and Social Council (ECOSOC) on credit ratings, Nigeria highlighted what it considered a mismatch between its economic fundamentals and borrowing costs.

The country argued that its debt-to-GDP ratio, foreign reserves and sovereign debt history compared favourably with some higher-rated economies.

Nigeria pointed out that its international dollar-denominated bonds had attracted yields ranging between 8.6 per cent and 9.1 per cent, while some highly indebted European economies borrowed at significantly lower rates.

The government also questioned why profitable Nigerian banks and businesses could successfully operate in international markets while the country’s sovereign rating remained below investment grade.

Nigeria has maintained that global rating agencies need stronger engagement with local investors, businesses and policymakers to better understand African markets.

Africa Launches Homegrown Credit Rating Solution

The establishment of the Africa Credit Rating Agency (AfCRA) is part of broader efforts by African institutions to reform the continent’s financial architecture.

The agency aims to address concerns that traditional rating models may overlook factors such as: informal economic activity, domestic resilience, demographic opportunities, local market conditions, climate vulnerability.

The African Union (AU) said AfCRA would complement existing international rating agencies rather than replace them.

The AU stressed that the agency would operate independently, rely on private-sector participation and remain free from government ownership to protect its credibility.

Why Africa Wants a New Credit Rating System

For decades, African governments have argued that international credit assessments contribute to higher borrowing costs by assigning excessive risk premiums.

A lower sovereign rating can affect: government borrowing, private-sector investment, infrastructure financing, foreign direct investment, currency stability.

African policymakers argue that expensive borrowing makes it harder for countries to finance development projects and achieve economic growth targets.

The United Nations Economic Commission for Africa (UNECA) has supported reforms aimed at reducing financing barriers and strengthening domestic capital markets.

Background: How the Credit Rating Debate Started

Concerns over Africa’s credit ratings intensified after the COVID-19 pandemic, when many African countries faced rising debt pressures, increased borrowing costs and reduced fiscal space.

Several African leaders argued that rating methodologies did not sufficiently consider: historical repayment records, economic reforms, natural resources, growth potential.

The debate gained international attention as African governments sought billions of dollars for climate adaptation, infrastructure development and social programmes.

The creation of AfCRA follows years of discussions among African governments, the AU, UN agencies and financial experts about developing a more continent-focused assessment system.