Credit rating agencies play a pivotal role in shaping how economies are perceived by global investors particularly in the capital markets space. During times of fiscal or economic distress they are essential in assessing default risk and serve as a bridge between sovereigns and investors. While strong institutions and fiscal discipline remain foundational to creditworthiness, the 9th CABRI engagement highlighted that consistent and credible engagement with rating agencies can significantly influence a country’s rating trajectory.

The types of fiscal anchors, debt ceilings, and financial buffers that have proven most effective are those that help countries preserve their sovereign credit ratings during periods of economic stress or external shocks

Fiscal anchors, such as debt ceilings and structural balance rules, along with financial buffers like sovereign wealth funds, have proven to be among the most effective tools in helping countries preserve their sovereign credit ratings during periods of economic stress or external shocks. However, the effectiveness of these mechanisms depends on the presence of strong institutions, transparent governance, and sound policy implementation. Chile and Nigeria were highlighted as examples.

• Chile is often highlighted for its robust fiscal policies and economic resilience. As the world’s largest producer of copper, the country’s natural resource wealth plays a central role in its economy. This has enabled Chile to implement strong fiscal anchors, such as the structural balance rule and to build financial buffers like sovereign wealth funds. These tools have helped stabilise the economy during periods of global volatility. Chile’s experience demonstrates how prudent fiscal management, supported by resource revenues and institutional strength, can preserve sovereign creditworthiness and investor confidence.

• Nigeria has committed to a debt ceiling (debt-to-GDP of 40 per cent) with the aim to ensure that the country’s borrowing remains within the manageable levels. Despite mounting fiscal Nigeria has largely kept its public debt below the 40 per cent ceiling, contributing to positive outlooks by the three main rating agencies, Fitch Ratings, Moody’s and S&P as of mid-2025. Fitch Ratings upgraded Nigeria's Long-Term Foreign-Currency Issuer Default Rating to 'B' from 'B-'. This reflects increased confidence in Nigeria’s policy direction and the impact of recent fiscal and monetary reforms.

For fiscal anchors such as debt ceilings or structural balance rules to work effectively, they must be both credible and attainable. Credit rating agencies assess not only the existence of these rules but also the government’s track record in adhering to them. To preserve credibility, escape clauses such as those triggered by extraordinary events like the COVID-19 pandemic must be clearly defined, transparent and applied consistently. A well-governed fiscal framework backed by sovereign commitment reinforces investor confidence and supports sovereign creditworthiness.

Addressing the persistent perceptions of rating gaps, biases, and misconceptions (particularly as they relate to emerging and African economies)

Credit rating agencies have emphasised that their sovereign rating criteria are publicly available and applied consistently across countries. These criteria cover a broad range of factors including institutional strength, fiscal performance, external vulnerabilities as well as economic structure. While the methodologies are standardised, rating agencies indicated that they do consider country-specific contexts and performance data. It is critical for governments to ensure that they understand and engage proactively with the published frameworks in order to improve rating outcomes and address perceived biases.

Fitch Ratings and S&P maintained that there is no evidence of bias in their sovereign rating assessments. A given credit rating level reflects the same degree of sovereign risk regardless of geography. In other words, a 'B' rating assigned to an African country carries the same assessed default risk as a 'B' rating assigned to a country outside the continent. Rating agencies emphasise that rating differences are driven by objective, quantifiable factors such as macroeconomic fundamentals, fiscal performance, institutional strength and external vulnerabilities and not by regional or geographic considerations.

Over the years more than USD 100 billion has been invested across the African continent, with most investors relying on credit ratings to guide their decisions. This demonstrates growing confidence in rated African issuers and is opening new avenues for capital mobilisation. The trend also reflects continued improvements in macroeconomic management, enhanced fiscal transparency and the gradual deepening of Africa’s financial market.

Economic growth is also a critical factor, as it leads to higher GDP per capita, which in turn generates increased fiscal revenue and strengthens a country’s capacity to service debt. Sustained economic growth not only improves debt ratios but also enhances resilience to external shocks and supports a more favourable credit risk profile over time. For example, Benin and Côte d’Ivoire have consistently maintained high growth trajectories, exceeding 6 per cent, positioning them among the strongest performers in West Africa. Their success is underpinned by robust policy reforms, economic diversification, and strengthened institutional frameworks, all of which have contributed to more effective responses to external shocks and improved credit ratings.

Resilience-building strategies that can help commodity-dependent countries maintain sovereign credit ratings during prolonged periods of market volatility

Several African economies remain heavily reliant on a narrow range of commodities such as oil, gold, copper, cocoa and coffee for export earnings and fiscal revenue. This dependence makes these countries vulnerable to price volatility and external shocks.
To strengthen resilience, it is crucial that revenue windfalls generated during commodity booms are saved through sovereign wealth funds, thus allowing countries to build robust fiscal asset positions. These buffers create space for countercyclical fiscal responses during economic downturns and help to reinforce policy credibility and sound governance, which are essential for sustaining investor confidence and enhancing sovereign creditworthiness.

To what extent are credit ratings factored into investment decisions across debt capital markets and other funding instruments?

Credit rating agencies play a crucial role in regions where investors may have limited access to reliable, first-hand information. In many African markets, where data limitations, lack of transparency or logistical barriers exist, credit ratings serve as a vital tool for bridging the information gap. They provide an independent assessment of credit risk, enabling funders and institutional investors to enter markets they might otherwise avoid due to uncertainty or perceived lack of visibility.

Regular and transparent engagement with investors has proved to be essential, particularly during periods of economic headwinds. Frequent communication helps in managing investor expectations, reinforce policy intent as well as maintaining market confidence. This consistency builds trust and credibility-both of which are critical for sustaining access to capital.

While some investors rely on credit ratings as a key input, pricing dynamics remains a significant challenge in several African countries. In many parts of the region, short-term debt instruments are highly priced, which often reflects elevated perceived risks and persistent market inefficiencies. This contributes to increased rollover and refinancing risks, thereby heightening the potential for default.

However, a supportive legal framework such as South Africa’s Regulation 28 allows retirement funds to allocate up to 45 per cent of their assets offshore, while maintaining a minimum of 55 per cent domestically. This enables institutional investors to diversify more effectively across both public and private markets-locally and internationally. Broader market participation and diversification can also enhance price discovery and contribute to lowering domestic borrowing costs.

Conversely, some institutional investors and asset managers are not mandated to rely solely on credit ratings when making investment decisions. Rather, they often complement rating agency assessments with their own internal risk frameworks, considering factors such as instrument size, pricing, currency and the tenor. Private investors such as those involved in infrastructure financing may also opt to bypass traditional rating mechanisms entirely in pursuit of higher-yield opportunities.