African Union first: A new chapter in Africa’s debt battle

Source: Reuters. The African Union logo is seen outside the AU headquarters building in Addis Ababa, Ethiopia, 8 November, 2021.

This is a move that could broaden the continent’s credit-rating coverage, with 23 African economies currently unrated by the three major global agencies.

Structured to operate independently, the Africa Credit Rating Agency (AfCRA) is set to bring a stronger understanding of African economies, markets and local context to credit assessments, while complementing the work of existing international credit-rating agencies, the African Union (AU) said in a statement. The AU is preparing to officially launch the agency at the InterContinental Mauritius Balaclava this evening.

The gathering brings together policymakers, trade and regional integration experts, the private sector, development partners, researchers and media to witness this historical milestone and to discuss their findings and what they mean for the future of African trade and integration.

But the significance of the launch extends well beyond today’s event.

Africa reclaims agency

The launch of AfCRA is 10 years in the making and represents a significant step towards greater financial self-determination, amid a growing push by African leaders for fairer borrowing terms and greater control over the continent’s financial future.

That push gained momentum in February last year, when eight former African heads of state united in an unprecedented move to sign the Cape Town Declaration in the Mother City. The declaration called for urgent debt relief and fairer borrowing terms for African nations.

Announced by former Nigerian President, His Excellency Olusegun Obasanjo, the declaration marked the launch of the African Leaders Debt Relief Initiative (Aldri), a collective effort to advocate for a comprehensive debt solution for the African continent.

While AfCRA has been in the making since 2018, its launch comes amid this broader push to reshape the continent’s approach to debt and development finance, including through Aldri.

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Debt squeezes Africa

Obasanjo stressed at the signing of Aldri that Africa is trapped in a crippling debt crisis, the worst in 80 years with more than half of the population living in countries that spend more on interest payments than on education, health, or mitigating climate change.

According to a United Nations Development Programme report, interest payments on debt exceeded 10% of government revenue in 56 developing nations - almost twice the number of countries compared to a decade ago, Of those, 17 countries spent more than 20% of revenue on interest payments - surpassing a threshold strongly linked to default risk.

"What this does is strangulate development, and the money that should be going into essential areas like social welfare, education, health, and nutrition is instead being used to pay debt that seems interminable," Obasanjo said.

The scale of that burden is stark. "The stakes are significant," the AU said, adding that the continent's annual external debt service surged to $163bn in 2024, from $61bn in 2010.

"AfCRA aims to reduce such burdens by improving investor confidence and market transparency," the AU said.

Backed by African leaders since 2018, the AU said AfCRA will, where appropriate, also rate non-African entities.