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- Dealing with Debt for a Fairer Future Across the Global South
Dealing with Debt for a Fairer Future Across the Global South
Rating agencies aren’t powerful because they inform. They’re powerful because they’re systemically necessary. How fair and sustainable are these dynamics?

Daniel Cash is a non-resident senior fellow at the United Nations University Centre for Policy Research (UNU-CPR), where he leads a dedicated effort to improve awareness and understanding of credit rating agencies in the context of the broader reform of the international financial architecture. He is an Associate Professor (Reader) at Aston University and holds a PhD in Banking, Corporate Finance and Securities Law from Durham University, UK.
UNU-CPR is a think tank within the United Nations that carries out policy-focused research and capacity-building on issues of strategic interest and importance to the UN and its Member States. The Centre prioritizes urgent policy needs requiring innovative, practical solutions oriented toward immediate implementation and sustainability over the long term.
The balance of power is shifting. With Official Development Assistance (ODA) recently cut in real terms by at least 1 percent, private creditors have become dominant across the Global South. According to UNCTAD, the organization promoting the interests of developing countries in global trade, private creditors are now holding 62 percent of all developing world debt.
One of the implications of this development is the exceptional rise of the influence of credit rating agencies, because they “inform” how private creditors perceive sovereign risk.
To put this into perspective: Developing countries’ average interest paid on external borrowing is now three times higher than that of developed countries, with separate analysis showing that borrowing from the capital markets is costing African governments 500 percent more than borrowing from official creditors – money that might otherwise be spent on essential sectors like healthcare and education.
Yet the relationship between Global South sovereign issuers and credit rating agencies remains relatively nascent and marked by deep asymmetry. Sovereigns often have little insights to rating agencies’ methodologies or insufficient opportunity to present their reforms and resilience strategies. All too often rating engagements leave issuers with extremely narrow windows to frame their narratives effectively. Compounding this gap is the limited in-country presence of rating agencies, especially in low-income nations.
There are some ways to overcome this detachment. I am advocating a two-part structured dialogue that would, according to my research, improve the quality of rating engagements.
The first part would be the establishment of Structured Peer Forums, where small clusters of sovereigns engage thematically with rating agencies outside the formal rating process. Thematic areas could include fiscal reforms, debt sustainability, governance resilience or external shocks.
The second complementary part would involve a light-touch, voluntary Charter to govern these forums, safeguarding confidentiality, ensuring procedural fairness and protecting participants. Crucially, it would not infringe on rating agencies’ independence or methodologies, nor compel sovereigns to disclose sensitive information.
Multilateral development banks (MDBs) – potentially including the OPEC Fund – are ideally positioned to convene these forums because they can be embedded within existing capacity-building programs. Previous successful models include the World Bank’s Debt Management Facility’s Stakeholder Forums, which helped debt managers and investors engage more effectively, or the African Financial Markets Initiative led by the African Development Bank (AfDB), which enhanced market transparency and strengthened sovereign issuance capacity.
However, both of these examples focus on technical assistance and market access – not on the relationship between sovereign and rating agency. The proposed dialogue would fill this gap by specifically addressing how governments present their case and how that is interpreted via the credit rating process. That is an important element that is missing from existing frameworks.
From theory to practice
To be effective, these forums will have to avoid delaying rating timetables by operating on fixed annual schedules outside of rating cycles; focused agendas will ensure more efficient discussions. Similarly, duplication should be minimized, including by moving beyond bilateral engagements to thematic group learning, creating institutional memory among issuers. In the process, cost implications could initially be absorbed by MDBs, aligning with their mandates to enhance sovereign financial resilience.
Steps should also be taken to limit unintended consequences. Sovereigns may fear their vulnerabilities could be exposed or taken out of context, while rating agencies may worry that participation could compromise their methodological neutrality (or the perception thereof). The proposed Charter would mitigate these risks by encouraging voluntary participation, ensuring confidentiality and explicitly preventing dialogue contents from directly influencing formal ratings. Sovereigns would retain control of their narratives, while agencies would maintain their analytic discretion.
This approach – involving sovereign issuers, rating agencies and MDBs – would cover all angles and bring benefits to the entire ecosystem. Implementation could, for example, begin with regional pilots clustering countries geographically (i.e. West, East and Southern Africa) and by themes, led by an organization such as the AfDB, followed by evaluation and potential expansion based on documented outcomes.
Possible themes would include: How are fiscal reforms and diversification efforts weighted in ratings? How are investment pipeline risks assessed relative to debt burdens? And how are post-default recovery efforts and governance improvements evaluated?
Groupings should reflect shared economic challenges and existing regional financial integration efforts. For example, commodity-related issues in West Africa, infrastructure-driven development challenges in East Africa, or debt distress issues in Southern Africa. Small clusters would ensure focused discussion, strengthen peer learning and foster trust among participants. Meanwhile, MDB patronage would provide neutrality and procedural rigor.
As with any pilot, monitoring, impact assessment and learning would be critical to correct missteps, demonstrate effectiveness, inform policy and encourage replication. Forums could establish mechanisms – such as charting a post-forum rating outlook or an independent review of participants’ disclosure levels – to track desired outcomes. These might include changes in rating volatility, information symmetry, sovereign capacity to present reform narratives and development financing cost trends.
Structured engagement is not a panacea. However, building fairer, more transparent relationships between governments and credit rating agencies today will strengthen the resilience of financial systems tomorrow, particularly across the Global South. By ensuring that sovereign narratives are properly contextualized, we can improve outcomes for all players in the sovereign debt ecosystem. It is a win-win scenario.
OPEC Fund Quarterly: You say that sovereigns may fear their vulnerabilities could be exposed. But isn’t transparency a necessary part of the process?
Daniel Cash: Transparency is the end goal here. But this refers to the need for a safe, off-the-record space before any formal disclosures are made. Many sovereigns are understandably cautious about raising in-progress reforms or policy vulnerabilities without clear safeguards. The forums are designed to build confidence and context first – so that public-facing transparency can be more substantive and less risky later.
OFQ: The Charter may encourage voluntary participation, but what would stop either side from walking out during the proceedings?
DC: The idea is to strike a balance: Participation would be voluntary, but the Charter and MDB facilitation would create procedural consistency – setting expectations on format, confidentiality and thematic scope. That soft structure builds reputational commitment without legal constraint. While walk-outs can’t be prevented, the reputational costs and MDB neutrality provide strong soft power to see the dialogue through.
OFQ: The Chatham House Rule of disclosing information without attribution would only work if there are multiple participants. What would be the ideal number or critical mass?
DC: A working assumption is small thematic clusters of around five sovereigns per forum (perhaps slightly more depending on the region). That number would be large enough to support peer learning and a meaningful diversity of perspective, but small enough to ensure confidentiality, focus and procedural clarity.
OFQ: Credit rating agencies have been around for decades, meeting the demands of low income countries (LICs) and middle income countries (MICs) to raise funds via bonds. Yet you depict these relationships as “nascent” and “asymmetric” – is this depiction either accurate or fair?
DC: What I mean by “nascent” isn’t that rating agencies haven’t been around – they obviously have. It’s that the institutional frameworks for meaningful dialogue remain underdeveloped. I’ve seen governments receive rating decisions with minimal explanation beyond top-line rationales, while appeal processes are practically nonexistent. “Asymmetric” captures who gets to shape the narrative. When a sovereign wants to explain why their debt trajectory isn’t as concerning as it looks, or how governance reforms are progressing, there’s often no structured way to get that story heard. That imbalance isn’t anyone’s fault – it’s just how the system evolved, but it’s worth addressing.
OFQ: Developing countries pay higher interest rates because they are higher risk. How can the international development community and private lenders square that circle?
DC: I completely agree – risk-based pricing is fundamental. The issue I’ve encountered is when risk gets misread because reforms or resilience strategies don’t register properly with credit rating agencies. Not because the data isn’t there, but because there are inefficiencies to allow it to be seen properly. Better engagement helps ensure that spreads reflect actual fundamentals rather than assumptions or communication gaps.
OFQ: On the higher rates paid by African countries: Official creditors are not lending at full market price, so isn’t this comparing apples and pears?
DC: It’s true that concessional loans aren’t market-priced. But credit ratings still shape access to those flows in other ways – particularly in co-financing arrangements, blended finance structures and in how market access is perceived during debt sustainability assessments. While the World Bank’s concessional terms are based on internal metrics, agencies’ ratings can inform broader perceptions of fiscal risk and creditworthiness. I’ve seen how poor ratings contribute to negative feedback loops that limit financing options and reduce flexibility. So while the pricing comparison isn’t direct, the systemic effects of rating quality still matter across both commercial and official financing landscapes.
OFQ: Developing country governments have ample opportunity to present their development strategies, while rating agencies have robust processes and tried and tested methods. Is it fair to depict the agencies’ processes as a black box?
DC: It’s not that methodologies aren’t published – they are. The black box is what happens in the rating committee room. How are different factors weighted in practice? What drives the final scoring adjustments? For governments, that process can feel opaque. When rating decisions significantly affect borrowing costs, it is worth asking whether governments can see inside that process.
OFQ: If rating agencies were to set up an office in each country they rate, who would pay for this overhead?
DC: I’m definitely not proposing offices in every country – that would be prohibitively expensive. What could work are targeted enhancements: rotating dialogues, regional technical exchanges or digital consultations embedded in existing technical assistance programs. These approaches cost far less than the economic impact of poorly calibrated ratings. When you consider that a one-notch rating improvement can save millions in borrowing costs, even modest investments in better engagement pay for themselves. The proposal is about practical tools that make existing government efforts more effective in credit markets.