Shift to domestic debt raises African interest burdens to 14 percent
African economies face mounting debt service burdens as higher interest rates on domestic currency borrowing offset recent fiscal gains. A new BIS report shows net interest payments now absorb 14 percent of government revenues across the region.
Local borrowing at a steep cost
African fiscal positions improved in 2025, with median primary deficits narrowing to 1.1 percent of GDP from 1.4 percent in 2024, while regional growth reached 4.4 percent.
However, overall median public debt remained high at 57 percent of GDP.
To avoid exchange rate risks and declining official assistance, low-income African nations expanded local currency debt issuance to 67 percent of total borrowing by 2024.
While domestic borrowing protects against currency depreciations, local treasury bills carry rates between 10 and 13 percent, compared with concessional multilateral rates below 2 percent.
Consequently, net interest payments have risen sharply, consuming 14 percent of government revenues in the median jurisdiction.
The sovereign-bank nexus tightens
Rising reliance on domestic markets has tied government finances tightly to local financial sectors.
Commercial bank claims on governments doubled over the past decade, averaging 20 percent of bank assets across Africa and exceeding 30 percent in several countries.
Meanwhile, central bank claims on governments rose to 30 percent of revenue during the pandemic and remain high.
This concentration crowds out private sector lending and threatens financial stability, while increasing pressure on central banks to monetize sovereign debt.
A double-edged financial shield
Local currency borrowing shields African sovereigns from exchange rate shocks but imposes crippling interest costs.
Relying on domestic banks creates a toxic feedback loop that starves the private sector of credit.
Without institutional investors, this trade-off merely trades currency crises for economic stagnation.