Risk premium, rating of African countries: an “overvalued and expensive” perception

The rating agency Moody’s lowered Senegal’s rating to Caa2 on Friday. For doctoral student in public finance Mor Thiam, even if the absence of partnership with the International Monetary Fund is a reality, he considers it excessive to “penalize the country up to Caa2 rank”. Which brings back to the table the debate on the perception of risk in Africa, often considered high compared to that of other regions.

On August 28, 2026, Moody’s downgraded Senegal’s sovereign rating from Caa1 to Caa2, with a negative outlook. The factors invoked by the agency are precise: increasing pressure on refinancing, deterioration of debt service capacity, limited prospects for debt reduction and, above all, the prolonged absence of a program with the IMF. Added to this, according to Moody’s, are factors such as political tensions, the risk of institutional paralysis, social pressures and regional security risks. For public finance doctoral student Mor Thiam, two levels of analysis must be distinguished. On the one hand, the quantitative indicators – debt/GDP, financing needs, absence of a program with the IMF – are objective and verifiable factors. “These are not contestable elements as such,” explains Mor Thiam.

On the other hand, he considers that the integration of qualitative factors, such as the “risk of institutional paralysis” or “political tensions”, is an assessment whose degree of subjectivity is, by nature, more difficult to objectify. “An empirical analysis by Thomas Loussouarn and Thibault Vasse, published by the Afd in 2025, also underlined that these qualitative evaluations are precisely those which are the most inclined to subjectivity and the most likely to be the origin of systematic biases”, quotes Mor Thiam. According to him, this does not mean that Moody’s judgment is erroneous in the Senegalese case, but that the margin of qualitative appreciation structurally constitutes an entry point for divergences of interpretation between the agency and the rated State. For him, penalizing the country up to rank Caa2 seems excessive for two reasons.

Disparities that raise questions

First, he says, financial transparency is sanctioned instead of being seen as a sign of political courage and institutional integrity. In the eyes of Mor Thiam, Moody’s barely mentions it, but Senegal benefits from the monetary solidity of the West African Economic and Monetary Union (UEMOA), with its collective regional reserves and the stability of the FCFA, which greatly reduces the risk of a classic balance of payments crisis. “Applying a “Caa2” grid – equivalent to that of a country on the immediate verge of bankruptcy without a safety net – to an economy integrated into a stable monetary zone demonstrates the rigidity of the agency’s evaluation grids,” maintains Mor Thiam. An exaggerated perception of risk According to Mor Thiam, three empirical elements emerge from recent economic literature. First, the rating gap between advanced economies and developing countries is substantial, of the order of nine notches on average, according to the study published in 2025 by the French Development Agency (Afd).

Sub-Saharan Africa is, on average, rated lower (B-/B) than other developing regions, which fall around BB. Disparities that raise questions Secondly, indicates Mor Thiam, the rating movements are structurally less favorable to Africa. The ratio of deteriorations/enhancements is, according to him, the highest of all regions in the world, lying between 1.44 and 3.92, compared to ratios close to balance or favorable elsewhere. “During the Covid-19 crisis, 55% of rated countries in sub-Saharan Africa suffered at least one deterioration in 2020, compared to 16% for advanced economies, even though the budgetary impact of the crisis had been relatively more contained there,” regrets Mor Thiam.

Thirdly, and on the most methodologically rigorous point, explains the doctoral student in public finance, the analysis of default rates shows that sub-Saharan Africa displays default rates that are often lower than global rates for the same rating, which questions the relative calibration of risk. “A Moody’s report cited in the Development Reimagined (2025) report shows that the failure rate of infrastructure projects in Africa was lower than that of Europe, Latin America and Asia. That said, the Afd study is rigorous on one important point: these disparities do not in themselves prove the existence of a discriminatory bias,” underlines Mor Thiam. According to him, they can reflect legitimate differences in fundamentals: vulnerability to external shocks, dependence on raw materials, less budgetary and monetary flexibility or even institutional quality.

Continuing his analysis, Mor Thiam believes that the sample of sovereign defaults remains, moreover, statistically limited, which limits the robustness of any causal inference. “What the literature identifies with more solidity are mechanisms likely to structurally disadvantage Africa: an index of geopolitical, economic and cultural proximity with the United States, which alone captures around 20% of the variance in sovereign ratings in the Afd study, places sub-Saharan Africa among the least “close” regions (score of 34/100, compared to 55/100 for advanced economies),” cites Mor Thiam as an example. According to him, there are also information asymmetries linked to the reduced availability and sometimes insufficient reliability of statistical and budgetary data, as well as analytical underinvestment by agencies in markets generating little revenue, Africa and Latin America together representing a marginal fraction of the turnover of Moody’s and S&P.

Reform the mechanisms

To deal with this high perception of risk in Africa, Mor Thiam believes that several areas can be considered, three of which remain urgent. The first consists of reforming existing methodologies, in particular by re-weighting the variables which structurally penalize African economies – factors linked to the history of post-structural adjustment defaults, underweighting of real economic growth – and by explaining the quantitative part and the qualitative part of each rating, as Fitch already does by distinguishing a modeled “preliminary” rating from adjustments based on expert assessment. The second consists of investing in local data and creating recourse and regulatory bodies.

Modeled on the European Esma, this body would supervise the agencies and impose more transparency as well as error correction procedures. “Currently, it seems to me that only Moody’s has an internal appeal mechanism,” he notes. The third consists of developing African rating agencies and Afcra, the African Credit Rating Agency supported by the African Union and the APRM. Its launch could constitute a solution insofar as it would aim to produce methodologies making it possible to measure “real rather than perceived African risk”, relying on local data – natural assets, informal sector, in particular – largely absent from the Big Three models. “The case of Bloomfield is, for example, a major step forward in this direction. These axes must be combined with coordinated pressure for the reform of the methodologies of the three major agencies, in particular via forums such as the G21 or the Bretton Woods institutions,” suggests Mor Thiam.

By Demba DIENG