Are Sovereign Ratings Biased Against Africa?

Abstract

Credit rating agencies play a crucial role in financial markets, but are often criticized for particular judgements they make. With debt sustainability in Africa coming under pressure during the COVID-19 pandemic, some market commentators renewed concerns about anti-African bias in sovereign credit ratings. Using ratings data from one of the largest agencies, and economic and fiscal data independently sourced from the IMF, this article formally tests for anti-African bias in sovereign ratings. In doing so, it focuses purely on quantitative explanatory factors, given the potential for any bias in ratings to be reflected in implicit bias within qualitative judgements made by rating analysts. However, there is no statistical evidence of bias against African sovereign over the data sample, which runs from 2016. As such, any future improvements in African sovereign ratings are likely to reflect sustained improvements in economic and fiscal strength and other factors influencing creditworthiness, rather than the removal of any prejudice against this group.