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Are Sovereign Ratings Biased Against Africa?

Author

Listed:
  • Colin Ellis

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.

Suggested Citation

  • Colin Ellis, 2022. "Are Sovereign Ratings Biased Against Africa?," Applied Economics and Finance, Redfame publishing, vol. 9(1), pages 29-36, December.
    • Handle: RePEc:rfa:aefjnl:v:9:y:2022:i:1:p:29-36
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    References listed on IDEAS

    as
    1. Tennant, David F. & Tracey, Marlon R. & King, Damien W., 2020. "Sovereign credit rating: Evidence of bias against poor countries," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    2. António Afonso & Pedro Gomes & Philipp Rother, 2011. "Short‐ and long‐run determinants of sovereign debt credit ratings," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 16(1), pages 1-15, January.
    3. David F. Tennant & Marlon R. Tracey, 2016. "Sovereign Debt and Credit Rating Bias," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-39150-6, December.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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