In recent years, Global South countries have increasingly relied on credit rating agencies (CRAs) to provide ratings for private creditors, such as pension funds and asset managers. The CRAs play a crucial role in the international financial architecture (IFA) by assessing the creditworthiness of countries, companies and securities, significantly influencing investment decisions, bond interest rates and economic stability.
These credit ratings are a critical first in obtaining private capital for countries’ development needs, especially amid declining Official Development Assistance (ODA) due to global crises like COVID-19, economic downturns, climate change and global conflicts. For example, the United Nations estimates a $4 trillion annual investment shortfall for developing countries to meet the Sustainable Development Goals by 2030, a 50 per cent increase from pre-pandemic estimates.
The methodologies and decisions of CRAs have faced growing scrutiny, as their ratings have, at times, exacerbated debt distress or impeded access to necessary private capital for some Global South countries. This growing scrutiny highlights the need for reform to address challenges and improve the fairness of credit ratings.
This UNU-CPR Working Paper provides a comprehensive overview of the role of credit rating agencies (CRAs) within the international financial architecture (IFA). It examines the structural issues affecting CRA practices and highlights the key drivers prompting calls for reform, along with the international community’s proposed reforms.
The paper also reviews regional initiatives in development intended to complement the CRA ecosystem and offers policy recommendations aimed at ensuring more inclusive representation and transparency, with a particular focus on African countries. The recommendations address systemic challenges faced by CRAs and their impact on Global South countries.
Access "Rating the globe: reforming credit rating agencies for an equitable financial architecture" here.
Suggested citation: Rating the globe: reforming credit rating agencies for an equitable financial architecture : UNU-CPR, 2024.
