LUCIE VILLA | Sub-Saharan Africa’s financing needs are set to rise

Economies in sub-Saharan Africa have broadened access to funding in recent years but still face the challenges of limited equity capital and debt, which come at a high cost. The war in the Middle East has made the situation worse with higher energy prices, inflation and other issues for hydrocarbon importers — which the majority of these economies are.

A borrower’s cost of debt mostly reflects a country’s interest rate environment, but also its mix of funding sources. The interest rates that banks and nonfinancial companies pay are influenced by a country’s policy rates and sovereign borrowing costs, though conditions in specific markets may loosen the link. In South Africa, Kenya and Nigeria, banks mostly rely on deposit funding, with a component of savings and term deposits which makes their cost of funding sensitive to policy-rate movements. Companies typically borrow at local policy rates plus a margin that depends on their credit quality.

Across Sub-Sharan Africa, higher oil prices will halt a slowdown in inflation, posing risks to economic activity, especially for hydrocarbon importers. Most central banks in sub-Saharan Africa will face pressure to raise interest rates, contrasting with the monetary easing cycle of the previous year. The conflict will also put pressure on currencies, which may further fuel inflation.

Moody’s forecasts that gross financing needs in sub-Saharan Africa will rise to $243bn (R3.9-trillion) in 2026 from $225bn in 2025 and will remain broadly stable as a share of GDP at 11.4%. Gross financing needs will be driven by local debt refinancing ($125bn), followed by interest payments ($77bn) and foreign currency debt refinancing ($39bn).

Borrowing costs remain high in sub-Saharan Africa, despite the easing of interest rates that started last year. This is true in major economies such as South Africa, Kenya and Nigeria, although they are lower in South Africa.

In South Africa, Kenya and Nigeria structural weaknesses keep borrowing costs elevated and will take time to address. In some parts of the continent, access to external funding dried up for several years until it started normalising at the end of 2025, as in the Central African Economic & Monetary Community (Cemac) where some governments turned to regional banks for financing, saturating the market, until access to external funding reopened.

In South Africa, all sectors benefit from deep financial markets and effective monetary policies, but costs have been higher than in many major emerging markets because of economic and fiscal constraints

Weaknesses in treasury and public financial management add to debt servicing risks at times of high financing needs. This is reflected in delayed debt repayments on regional markets by Cameroon in 2022 and the Republic of the Congo in 2024 and again in January 2025, which Moody’s deemed events of default.

In South Africa, all sectors benefit from deep financial markets and effective monetary policies, but costs have been higher than in many major emerging markets because of economic and fiscal constraints. South Africa’s foreign currency borrowing costs partly reflect high public sector indebtedness, including contingent liabilities from state-owned enterprises. However, the 2026 budget confirmed the improving fiscal position. Moody’s expects the primary surplus to rise and the interest bill to gradually decline, supported by strengthening fiscal credibility and the shift to a lower inflation target.

Although policies targeting fiscal and economic issues in South Africa are advancing, they will take time to produce results. Difficulties in implementing these policies stem from the complexity of structural reforms, entrenched private interests reducing the efficiency of public spending, ideological resistance to increased private-sector involvement in state-controlled sectors, and political difficulties under a coalition government. Still, ongoing progress in electricity, logistics and water reforms could ease network constraints, helping to boost export capacity and crowd in substantial private investment.

In Kenya, limited savings and a large informal economy constrain market depth. Corporate access to market debt is highly restricted, exacerbated as high sovereign funding needs crowd out the private sector. Banks have a key role in allocating credit but sometimes face a volatile policy environment.

In Nigeria, still-high inflation and limited savings keep borrowing costs elevated. The sovereign and banks have mitigated high market borrowing costs through lower-cost funding sources, but companies are less able to do the same. Last year, we estimated that about 20% of sovereign local-currency debt consists of long-term (40-year) and below-market-interest (9%) instruments held by the central bank.

Nigeria’s financial markets are better than those of Kenya at channelling funds to companies, partly because there is less competition from the sovereign for funding.

Moody’s expects most banks in the Cemac region to remain willing to purchase regional sovereign debt securities, but at increasingly higher interest rates because of tight liquidity conditions and increasing sovereign debt levels.

We also expect the regional banking system to increasingly differentiate the funding it extends to regional sovereigns. This means the weakest sovereigns will mainly raise funding through special syndicated operations, where issuance parameters such as coupon, maturity and amount are set before issuance and after investor feedback.

Moody’s forecasts that about 70% of financing needs in saran Africa in 2026 will be met through domestic borrowing, broadly in line with previous years. Still, in the first months of 2026, many countries in the region, including the Republic of the Congo and Kenya, returned to the eurobond market. The Middle East conflict could, however, make investors more cautious and make it harder for hydrocarbon-importing countries to tap international debt markets.

• Villa is senior vice president at Moody’s Ratings