The New Face of African Debt

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The New Face of African Debt

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Bibliographic details

• Authors: AMADOU SY, Athene Laws
• Published: March 3, 2026

Trend: shift from external to domestic debt

• Sub-Saharan African governments have increasingly shifted borrowing away from external debt and toward domestic debt.
• At the turn of the millennium, governments relied heavily on external loans, particularly concessional lending in foreign currencies from bilateral and multilateral institutions.
• Strong growth and global search for yield led many countries to issue Eurobonds (dollar- or euro-denominated) before international rate shocks and tightened global financial conditions in 2022 shut many countries out of global markets.
• No countries in sub-Saharan Africa issued Eurobonds between spring 2022 and January 2024.
• Over time, countries pivoted toward borrowing in domestic markets and in local currency; as a result, most of sub-Saharan Africa’s public debt is now domestic.

Benefits of developing domestic debt markets

• Borrowing in local currency:
  • Sidesteps exchange rate shock risk and the need to use foreign reserves for repayments.
  • Makes debt management simpler and more predictable because local laws govern debts.
  • Reduces exposure to swings in international investor sentiment and global interest rates.
• Broader macroeconomic benefits:
  • Supports monetary policy operations by expanding central banks’ tool kits.
  • Regular issuance at different maturities creates a yield curve, aiding risk pricing and financial market development.
  • Lays foundations for private sector financing, job creation, and economic growth.
• Empirical context:
  • The recent freeze in Eurobond issuance illustrates dangers of overreliance on a single financing source.

New and evolving risks from domestic debt

• Short maturities and rollover risk:
  • Domestic debt is typically issued for much shorter periods than external loans (sometimes days or months rather than years or decades).
  • Some countries (Mauritius and Tanzania) have lengthened maturities; others have short-term borrowing due to shallow markets or high vulnerabilities.
  • Ghana, since its 2023 domestic debt restructuring, has issued only T-Bills maturing in under a year, with an average outstanding maturity of less than three months as of November 30, 2025.
  • Shorter maturities increase rollover risk when debt comes due.
• Higher apparent cost of domestic debt:
  • Domestic debt often carries interest rates higher than concessional loans and sometimes higher than market-rate Eurobonds.
  • The median country in sub-Saharan Africa issued domestic debt at an average of 8.8 percent interest in 2024.
  • Because inflation is higher in much of the region, real debt costs can vary widely and may in some cases be negative.
• Sovereign-bank nexus and financial system strain:
  • Banks in many countries hold large amounts of government debt, which can push up interest rates and crowd out private lending.
  • A loss in government creditworthiness can wipe out bank assets and trigger banking crises; banking crises can lead to bailouts, reduced private credit, capital outflows, and deeper fiscal crises.
  • Sub-Saharan Africa is seeing the sovereign-bank nexus grow faster than anywhere else in the world, driven primarily by low-income countries.
• Risks from greater foreign participation:
  • Higher nonresident ownership is associated with lower yields and greater liquidity, reducing debt-servicing costs.
  • However, foreign flows can be volatile and create “hot money” problems that cause large swings in yields and sales.
  • Policy design is complicated by lack of data on ownership.

Policy recommendations and best practices

• Treat domestic debt market development as part of a broader economic strategy rather than a crisis stopgap.
• Maintain good debt-management practices:
  • Issue timely, accurate, and comprehensive debt statistics.
  • Communicate effectively with investors and the public to build trust.
  • Implement strong legal and regulatory frameworks and prudent debt portfolio management.
  • Adopt a clear debt sustainability strategy.
• Strengthen public financial management:
  • Empower auditors and enhance governance.
  • Improve oversight of state-owned enterprises.
  • Practice sound cash management.
  • Ensure public investment management is efficient and directs resources to growth-enhancing investments.
• Broaden and deepen domestic investor base:
  • Expand demand for government debt beyond banks to include pension funds, insurance companies, and other long-term private capital providers.
  • Allow carefully managed foreign investor participation to improve liquidity and lower yields while mitigating volatility risks.
• Strengthen financial sector regulation and supervision:
  • Reduce excessive bank holdings of sovereign debt.
  • Improve data collection on debt ownership and market activity.
• Complement market development with private sector reforms:
  • Unlock barriers to business growth and economic diversification through reforms in the business environment, education, skill development, and infrastructure.
• Preserve stable macroeconomic conditions:
  • Strong fiscal management, low and stable inflation, and sustainable debt burdens are essential preconditions for successful domestic debt market development.

Key statistics and illustrative facts

• No Eurobond issuance by any sub-Saharan African country between spring 2022 and January 2024.
• Ghana’s average outstanding maturity of domestic debt: less than three months as of November 30, 2025.
• Median domestic debt interest rate in sub-Saharan Africa in 2024: 8.8 percent.
• A typical government in the region spends about one-seventh of its revenue on interest payments.

Additional notes

• Authors: AMADOU SY (assistant director, IMF African Department) and ATHENE LAWS (economist, IMF African Department).
• A related podcast features Amadou Sy discussing benefits of issuing debt in local markets and in local currency.

Source: The New Face of African Debt, F&D Magazine, AMADOU SY and ATHENE LAWS, March 2026.

Content in this bundle

• The New Face of African Debt
  • The New Face of African Debt (Markdown version)
  • The New Face of African Debt (PDF)