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This study investigates (1) whether democratization drives sovereign credit ratings (SCR) changes (the “democratic advantage”) or whether SCR changes affect democratization, (2) whether the degree of democratization in sub-Saharan African (SSA) countries affects the associations and (3) whether the associations are significantly affected by resource dependence.

This study investigates the effects of SCR changes on democracy in 22 SSA countries over the period of 2000–2020 VEC Granger causality/block exogeneity Wald tests, and impulse responses and variance decomposition analyses with Cholesky ordering and Monte Carlo standard errors in a panel VECM framework.

The full sample impulse responses find that a SCR shock has a long-run detrimental effect on the democracy and political rights but only a short-run positive impact on civil liberties. Among the sub-samples, it is found that the extent of natural resource dependence does not affect the magnitude of SCR shocks on democratization mentioned above but it is found that a SCR shock affects long-run democracy in SSA countries that are relatively more democratic but is more likely to drive democratic deepening in less democratic SSA countries. The full sample variance decompositions further finds that the variance of SCR to a political rights shock outweighs the effects of all the macroeconomic factors, whereas in more diversified SSA countries, the variances of SCR are much greater for democracy and political rights shocks, which suggests that democratization and political rights in diversified SSA economies are severely affected by SCR changes. In the case of the high and low democracy sub-samples, it is found that the variance of SCR in the relatively higher democracy sub-sample is greater than in the low democracy sub-sample.

These results have three implications for democratization in SSA. First, the effect of a SCR change is not a democratically agnostic and impacts political rights to a greater extent than civil liberties. Second, SCR changes have the potential to spark a negative cycle in SSA countries whereby a downgrade leads to a deterioration in socio-political stability coupled with increased financial economic constraints that in turn drive further downgrades and macroeconomic hardship. Finally, SCR changes are potentially detrimental for democracy in more democratic SSA countries but democratically supportive in less democratic SSA countries. Thus, SSA countries that are relatively politically sophisticated are more exposed to the effects of SCR changes, whereas less politically sophisticated SSA countries can proactively shape their SCRs by undertaking political reforms.

This study is the first to examine the associations between SCR and democracy in SSA. This is critical literature for the Africa’s scholarly work given that the debate on unfair rating actions and claims of subjective rating methods is ongoing.

This study is a comparative analysis of the magnitude of economic growth as a key determinant of long-term foreign currency sovereign credit ratings in 30 countries in Africa, Europe, Asia and Latin America from 2010 to 2018.

The analysis applies the fixed effects (FE) and random effects (RE) panel least squares (PLS) models.

The authors find that the magnitude economic coefficients are marginally small for African countries compared to other developing countries in Asia, Europe and Latin America. Results of the probit and logit binary estimation models show positive coefficients for economic growth sub-factors for non-African countries (developing and developed) compared to negative coefficients for African countries.

These findings mean that, an increase in economic growth in Africa does not significantly increase the likelihood that sovereign credit ratings will be upgraded. This implies that there is lack of uniformity in the application of the economic growth determinant despite the claims of a consistent framework by rating agencies. Thus, macroeconomic factors are relatively less important in determining country's risk profile in Africa than in other developing and developed countries.

First, studies that investigate the accuracy of sovereign credit rating indicators and risk factors in Africa are rare. This study is a key literature at the time when the majority of African countries are exploring the window of sovereign bonds as an alternative funding model to the traditional concessionary borrowings from multilateral institutions. On the other hand, the persistent poor rating is driving the cost of sovereign bonds to unreasonably high levels, invariably threatening their hopes of diversifying funding options. Second, there is criticism that the rating assessments of the credit rating agencies are biased in favour of developed countries and there is a gap in literature on studies that explore the whether the credit rating agencies are biased against African countries. This paper thus explores the rationale behind the African Union Decision Assembly/AU/Dec.631 (XXVIII) adopted by the 28th Ordinary Session of the African Union held in Addis Ababa, Ethiopia in January 2017 (African Union, 2017), directing its specialized governance agency, the African Peer Review Mechanism (APRM), to provide support to its Member States in the field of international credit rating agencies. The Assembly of African Heads of State and Government highlight that African countries are facing the challenges of credit downgrades despite an average positive economic growth. Lastly, the paper makes contribution to the argument that the majority of African countries are unfairly rated by international credit rating agencies, raising a discussion of the possibility of establishing a Pan-African credit rating institution.

The purpose of this paper is to examine whether new sovereign credit rating (SCR) changes are valuable, and relevant information is provided to bond and equity markets in 30 African countries that received an SCR during the period 1994–2014.

This study applies a combination of GARCH models and event study techniques.

This study shows that the financial markets do not significantly react to SCR announcements, possibly because these African markets are already perceived to be risky.

At last, a significant portion of Africa’s sovereign debt is held by foreign investors (Arslanalp and Tsuda, 2014) who commonly preclude asset managers from investing in low SCR grades. Thus, an unfavorable SCR announcement could lead to a withdrawal of these funds, which could significantly alter both fiscal and monetary policies in the economy.

SCRs is immaterial to investors holding African securities.

Although financial markets are weakly responsive to SCR announcements, they appear to be informationally important in the operation of stocks and bond markets in Africa. Therefore, governments should appreciate the long-term information exchange between investors and borrowers, and the consequential nature of credit ratings in Africa’s nascent financial markets in order to proactively manage the risks of negative ratings.

Studies on credit rating effects on Africa markets are rare.