‘Priced Out of the Market’: UN Warns Developing Countries Trapped by Unfair Credit Ratings as Debt Costs Soar
UNITED NATIONS, New York — Developing countries are being systematically priced out of the affordable finance they desperately need for sustainable development, with sovereign credit ratings often overstating risk and overlooking long-term economic potential, the UN warned Monday. The current system, which relies on “outdated and incomplete information,” leaves nations unfairly penalized in global capital markets, driving up borrowing costs and diverting billions away from health, education, and climate action.
Speaking at the opening of the UN’s Economic and Social Council (ECOSOC) Special Meeting on Credit Ratings, Deputy Secretary-General Amina Mohammed delivered a stark message on behalf of Secretary-General António Guterres: “Adequate and timely finance is the fuel that drives sustainable development. Today that fuel is running perilously low, and it’s getting more costly.”
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The numbers are staggering. According to UN data, developing countries face nearly $1.4 trillion in annual debt servicing costs. More than 3.4 billion people—nearly half of humanity—live in countries that spend more on debt interest payments than on health or education. In the poorest nations, debt service often consumes a larger share of government revenue than any other budget line item, crowding out investments in schools, hospitals, roads, and climate resilience.
“This is a matter of profound importance,” Mohammed said. “It is about whether the global financial system works for everyone—or only for the wealthy.”
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How Credit Ratings Work—And Why They Fail the Developing World
A credit rating is an assessment of how likely a borrower—in this case, a national government—is to repay its debt on time and in full. For sovereign states, ratings determine how much countries must pay to borrow in international markets. The lower the rating, the higher the perceived risk, and the higher the interest costs.
In theory, credit ratings provide useful information to investors. In practice, the UN argues, the system is deeply biased against developing countries. The three major credit rating agencies—S&P Global, Moody’s, and Fitch—are private, for-profit entities headquartered in wealthy nations. Their methodologies, the UN contends, often rely on incomplete data, fail to account for long-term growth potential, and systematically underestimate the ability of developing countries to repay debt when investments in human and physical capital are made.
“The current system too often relies on outdated and incomplete information,” Mohammed said. Countries are penalized not for their actual economic performance but for perceptions of risk that are often disconnected from reality.
The consequences are concrete and devastating. A country with a low credit rating might pay 5, 10, or even 15 percentage points more in annual interest than a wealthy nation with a high rating. Over the life of a loan, that difference can amount to billions of dollars—money that could have built schools, hired teachers, vaccinated children, or installed solar panels.
Global Instability Deepens the Crisis
Mohammed added that the current wave of global instability is deepening the crisis. Rising fuel and raw material costs linked to the Middle East conflict and broader economic volatility are intensifying fiscal pressures and slowing growth in developing countries. Climate-vulnerable nations continue to face disaster losses—from floods, droughts, cyclones, and heatwaves—without access to affordable recovery financing.
The result is a vicious cycle. A climate shock destroys infrastructure and crops, hurting economic output. That, in turn, leads to a downgrade or negative outlook from credit rating agencies. The downgrade makes borrowing more expensive, leaving less money for climate adaptation. The next climate shock hits even harder.
“When the Strait of Hormuz is strangled, the world’s poorest and most vulnerable cannot breathe,” Mohammed said, echoing language used earlier this week by Secretary-General Guterres in the context of the Middle East conflict. The same principle applies to credit ratings: when the global financial system is stacked against the poor, the poor cannot grow.
Beyond GDP: What Credit Ratings Miss
One of the core problems, Mohammed argued, is that credit ratings rely too heavily on narrow measures of progress—especially Gross Domestic Product (GDP). “GDP tells us the cost of everything and the value of very little,” she said.
GDP measures economic output, but it does not measure education levels, public health, environmental sustainability, social cohesion, or resilience to shocks. A country could have strong human capital, abundant renewable energy potential, and a stable political system, yet receive a low credit rating because its GDP per capita is modest.
Moreover, Mohammed argued that credit ratings fail to recognize that investment in sustainable development actually improves a country’s ability to repay debt over time. “Affordable borrowing for development can strengthen a country’s future solvency,” she said. Investment in health, education, infrastructure, climate resilience, and renewable energy can generate prosperity, reduce risk, and improve economic stability over time.
But if a country cannot borrow affordably to make those investments in the first place, it remains trapped in a low-growth, high-debt equilibrium.
A Borrowers’ Platform and African-Led Reform
Mohammed linked the credit ratings debate to wider efforts to reform the global debt architecture, pointing to new steps aimed at giving developing countries a stronger voice in debt discussions. These include a borrowers’ platform—a forum where debtor nations can coordinate their positions and negotiate collectively—as well as ongoing work on principles for responsible sovereign borrowing and lending.
The UN is also leading a process that brings together debtor and creditor countries, private creditors, international financial institutions, academics, and civil society to develop more equitable rules of the road for sovereign debt.
Mohammed specifically cited the planned African Credit Rating Agency as an example of efforts to improve data, transparency, and risk assessment from a developing-country perspective. The proposed agency, which is being developed by the African Union and regional partners, would provide an alternative to the three dominant Western agencies, using methodologies better suited to African economic realities.
“We must transform the mindsets from long-term speculation to long-term investment,” Mohammed said, calling for broader, more transparent, and forward-looking methodologies that better reflect countries’ real prospects.
A Call to Reimagine the System
Mohammed’s speech was not merely a critique—it was a call to action. She urged a major shift in how sovereign ratings are designed, arguing that assessments should capture not only vulnerability but also opportunity.
“It’s time to turn credit ratings from barriers into contributors to long-term finance and sustainable development,” she said.
That transformation would require several concrete steps:
- More transparent methodologies: Rating agencies should disclose the data and assumptions behind their assessments, allowing countries to understand and challenge their ratings.
- Forward-looking analysis: Ratings should incorporate countries’ investments in human capital, infrastructure, and climate resilience, which improve future repayment capacity.
- Reduced pro-cyclicality: During global crises, rating downgrades should not automatically trigger debt repayment acceleration, which worsens downturns.
- Greater accountability: Governments, investors, and ratings providers must all be held responsible for the consequences of their assessments and decisions.
Mohammed also called for stronger data systems in developing countries themselves. Better data on economic fundamentals, public finances, and development outcomes would allow for more accurate risk assessments and could lead to higher credit ratings over time.
The Stakes: Development or Debt Trap?
The outcome of this debate is not academic. For the 3.4 billion people living in countries where debt service exceeds spending on health or education, the stakes are life-and-death. Every dollar spent on interest payments is a dollar not spent on vaccines, teachers, clean water, or climate adaptation.
Without affordable finance, the Sustainable Development Goals (SDGs)—from ending poverty and hunger to achieving universal health coverage and climate action—will remain out of reach. The gap between developed and developing countries will widen. And the cycle of debt, underinvestment, and vulnerability will continue.
But Mohammed ended on a note of hope. The tools to fix the system exist. The will to use them is growing. The planned African Credit Rating Agency, the borrowers’ platform, and the UN-led multi-stakeholder process are all signs that the status quo is being challenged.
“It’s time to turn credit ratings from barriers into contributors to long-term finance and sustainable development,” Mohammed said. “We must transform the mindsets from long-term speculation to long-term investment.”
For the billions of people in developing countries waiting for a fair chance at prosperity, that transformation cannot come soon enough.
SOURCES / INPUTS
https://news.un.org/en/story/2026/03/1167219
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