Borrowing costs for governments and businesses in South Africa, Nigeria and Kenya have risen in the last five years, according to a study by Moody’s Ratings.
- Borrowing costs in South Africa, Nigeria, and Kenya have increased significantly in the past five years due to policy weaknesses and inflation.
- These nations face challenges from higher interest rates compared to advanced markets, along with limited access to capital.
- Global financial bias results in annual losses of $75 billion for Africa, attributed to increased borrowing costs and reduced revenues.
- Concessional lending has mitigated some foreign-currency debt costs, yet domestic and international borrowing expenses remain high.
Borrowing costs for governments and businesses in South Africa, Nigeria and Kenya have risen in the last five years due to policy weaknesses, unfavourable market conditions and inflation, according to a study by Moody’s Ratings.
While these economies continue to face growing financing needs to support development and growth, they are burdened by higher interest rates than those in advanced markets, a challenge exacerbated by their limited access to capital.
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“Debt costs for banks, non-financial companies and sovereigns have increased in all three markets alongside higher policy rates during the past five years,” said Lucie Villa, a senior vice president at Moody’s, in the report on credit conditions.
Global bias adds to the burden
The problem is not only domestic. In August, Samaila Zubairu, president of the Africa Finance Corporation, said global financial bias costs Africa $75 billion annually in inflated borrowing costs and lost revenues.
Research by Moody’s Ratings last year revealed that Africa’s sovereign default rates are largely consistent with those of similarly-rated countries. Yet, its debt trades at wider spreads, indicating that investors are pricing in additional, non-fundamental risks.
Concessional lending from development partners, often at lower interest rates, has helped soften foreign-currency debt costs. But these facilities have not been sufficient to offset the elevated expenses of borrowing in both domestic and international markets, Moody’s said.
It added that while international borrowing costs for South Africa, Nigeria, and Kenya have declined, with interest spreads over U.S. Treasuries narrowing for lower-rated Kenya and Nigeria since 2022, they remain high at about 500 basis points.
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South Africa benefits from lower interest rates thanks to its deeper domestic capital markets and credible monetary policy framework. However, its borrowing costs remain elevated compared with many other emerging markets, reflecting ongoing fiscal pressures.
Moody’s attributed Kenya’s high financing costs to government overborrowing and underdeveloped local markets, which have squeezed credit access for businesses. In Nigeria, elevated inflation and weak savings continue to limit the supply of affordable credit.
Addressing these structural imbalances, including the establishment of stronger policy frameworks, will be a gradual process, Reuters reported.
