Opportunity to reform ratings agencies

As G20 chair, South Africa has the power to shape the agenda

- MISHECK MUTIZE

ONE of the commitments the South African presidency of the G20 made in its policy priorities document at the beginning of 2025 was to push for fairer, more transparent sovereign credit ratings. And to address the high cost of capital caused by an illusive perception of high risk in developing economies.

South Africa proposed to establish a commission to look into the cost of capital. In particular, to investigate the issues that impair the ability of lowand middle-income countries to access sufficient, affordable and predictable flows of capital to finance their development. For many in Africa, this was more than a bureaucratic statement. It represented the first real chance for countries in the Global South to challenge the entrenched power of international credit rating agencies through the G20. Through the influence of their opinions, Moody’s, S&P Global Ratings and Fitch Ratings are at the centre of driving the high cost of borrowing in Africa. But the window of opportunity for advances to be made on this are narrowing. The South African government and the country’s business community have not used the opportunity provided by the G20 presidency to press for reforms that could reduce Africa's borrowing costs and strengthen its financial sovereignty.

Credit rating agencies are not neutral observers of financial markets. Their judgements directly shape investor sentiment, access to finance and the interest rates countries pay when issuing bonds. For developing countries, especially in Africa, ratings determine whether a government spends its scarce resources on debt servicing or on development needs such as schools and hospitals. The problem is not just the ratings themselves but the inaccuracy and subjectivity of how they are determined.