Sub-Saharan Africa (SSA) faces a pressing economic challenge: high borrowing costs that slow growth, constrain infrastructure development, and limit job creation. This issue is particularly pronounced in SSA, where the volume of nominal public debt has more than tripled since 2010, reaching about US$1.14 trillion by the end of 2022. This rapid increase is largely driven by weak debt management systems, significant debt transparency gaps, fragile macro-fiscal management, greater reliance on costlier and riskier sources of financing, and exposure to adverse economic shocks. As a result, a growing portion of government resources is diverted from critical social and development sectors toward debt servicing, perpetuating cycles of poverty and hindering progress toward the Sustainable Development Goals.

Recent analyses indicate that without meaningful policy reforms, financing costs in Sub- Saharan Africa will remain high, constraining investment and slowing economic growth. The World Bank estimates that countries in the region need to invest approximately 7.1% of GDP annually in SDG-related infrastructure, yet current investment levels are roughly 3.5% of GDP. These gaps highlight the critical need for targeted reforms to lower borrowing costs, strengthen fiscal management, attract investment, and support sustainable long-term economic growth across the region.

Why borrowing is so expensive

Several factors contribute to the high cost of borrowing:

  1. low domestic savings: countries with limited savings often rely on external lenders, who typically charge higher interest rates. In Sub-Saharan Africa, domestic savings rates are generally low, increasing dependence on costly foreign financing.

  2. shallow financial markets: underdeveloped financial markets make it more difficult for governments and businesses to raise funds at affordable rates, as investors demand higher returns to compensate for risk. In the region, markets are often illiquid and small, limiting access to long-term financing.

  3. weak credit infrastructure: limited credit reporting and inadequate collateral systems reduce access to finance and increase lending costs. Many Sub-Saharan African countries face these challenges, making it difficult for firms and households to secure loans.

  4. policy instability: unpredictable fiscal and monetary decisions further discourage investment and raise borrowing costs. In the region, policy uncertainty is amplified by factors such as overborrowing, weak debt management, and governance challenges which increase risk premiums for lenders.

  5. currency risk: depreciation of the local currency increases the cost of repaying foreign- denominated debt. Sub-Saharan African countries are particularly exposed due to heavy reliance on external financing and limited hedging options.

  6. global financial conditions: changes in global financial conditions, such as interest rate increases in advanced economies, affect borrowing costs for countries around the world. Sub-Saharan Africa is particularly vulnerable due to its reliance on external financing and exposure to global capital market shifts.

The debt burden: scale and drivers

The escalating borrowing costs in Sub-Saharan Africa are mirrored in the growing size and shifting composition of national debts. In Uganda, public debt surged by over 26% in the 2024/25 fiscal year, reaching approximately US$32 billion. Notably, domestic borrowing accounted for 52.7% of this increase, while external borrowing rose by just 6.2%. Domestic debt typically carries higher interest rates and shorter maturities, leading to a rapid escalation in debt servicing costs. Kenya faces similar fiscal challenges. The Annual Public Debt Management Report indicates that total debt service as a percentage of ordinary revenue increased to 68.3% in the 2023/24 financial year, up from 58.8% in 2022/23. This sharp rise in debt servicing has significant implications for budget allocation.

The Institute of Economic Affairs notes that within the Consolidated Fund Services (CFS), the portion of ordinary revenue dedicated to public debt servicing increased substantially, from 49% to 73% over the same period. These figures highlight the growing challenge of balancing debt obligations with the need to invest in critical sectors such as health, education, and infrastructure. High debt servicing ratios of this magnitude serve as warning signals to markets, raising concerns about Kenya’s fiscal sustainability and limiting fiscal space for development priorities. Another concerning trend is the shortening maturity profile of debt. In Uganda, the share of debt maturing within one year increased from 10.3% in June 2023 to 14.8% in June 2024, reflecting a growing reliance on short-term borrowing and heightened rollover risk, as global interest rates remain high. At the same time, the share of debt held by external commercial creditors slightly decreased from 13.6% in FY2022/23 to 11.8% in FY2023/24, indicating that reliance on commercial loans has not risen significantly.

Nevertheless, the reduced availability of grants and concessional loans continues to pressure debt management, underscoring the need for careful fiscal planning. These dynamics make debt more than just a fiscal issue. Heavy reliance on domestic borrowing can crowd out private investors, while high sovereign yields establish a costly benchmark for all other borrowing in the economy. As a result, businesses and infrastructure projects face higher financing costs, which slows investment and job creation. In effect, rising debt service acts as a hidden tax on growth, reducing the very economic dynamism needed to generate the revenue required to repay the debt.

Reform agenda: unlocking affordable capital

High borrowing costs and growing debt burdens make it clear that Sub-Saharan Africa must adopt targeted reforms to unlock affordable capital and stimulate sustainable economic growth. A reform agenda for the region must be both comprehensive and sequenced tackling short-term bottlenecks while building long-term resilience.

  1. civersifying pension fund investments Pension funds represent a significant yet underutilized source of domestic capital in Africa. Currently, these assets are largely tied up in government debt, reinforcing sovereign dependency and offering limited developmental impact. Nigeria is now moving to change this. The National Pension Commission (PenCom) is seeking to diversify its Retirement Savings Account portfolio worth US$14.58 billion ,away from heavy concentration in government securities (currently about 60%) and into infrastructure and private equity. To achieve this, PenCom is revising credit-rating requirements, creating new investment vehicles, and strengthening governance frameworks. If successful, this reform will unlock a new pool of long-term capital that can finance power, transport, and digital infrastructure, reducing reliance on costly sovereign borrowing.

  2. capital market deepening and regulatory modernization Reducing the cost of capital also requires stronger and more liquid domestic markets. Complex listing requirements, shallow secondary markets, and weak investor protections all raise issuance costs. OECD research highlights the value of simplifying listing rules, improving securities exchange governance, and creating alternative platforms for small and medium issuers. For SSA, these reforms would lower barriers for both sovereigns and corporates, enabling deeper markets that support more competitive pricing and attract international investors on fairer terms.

  3. strengthening fiscal credibility and resource mobilization Stable and predictable revenue systems are essential for lowering risk perceptions. Expanding the tax base, reducing costly exemptions, and publishing credible medium-term fiscal strategies can reassure investors and rating agencies that fiscal positions are sustainable. Côte d’Ivoire offers a useful case study. In early 2024, Côte d'Ivoire executed a significant debt management operation, utilizing US$1.9 billion from a new Eurobond issuance to repurchase a portion of its existing Eurobonds and 16 commercial loans. This strategic move reduced the country's debt service obligations in 2025 by approximately 1% of its revenue, thereby creating valuable fiscal space for other priorities. Simultaneously, they made history by issuing their first-ever CFA franc-denominated bond on the international market. This €335 million bond, with a 6.875% coupon rate and a three-year maturity, was listed on the London Stock Exchange. Repayments are to be made in euros, thus mitigating foreign-exchange risk. These coordinated efforts comprising the debt buyback and the issuance of CFA franc-denominated bonds, have collectively enhanced investor confidence and helped maintain manageable financing costs for the country.

  4. transparency and debt management reforms Investor confidence is influenced less by the absolute level of debt and more by the clarity and reliability of debt information. Countries that maintain transparent debt registers, publish borrowing strategies, and disclose contingent liabilities reduce uncertainty, which can directly lower borrowing costs and spreads. The International Monetary Fund and World Bank emphasize that robust debt transparency strengthens fiscal credibility, prevents hidden risks, and fosters investor trust, especially in developing economies where off-budget and complex borrowing arrangements are common. Transparency is also crucial for mobilizing climate finance. Governments adopting clear frameworks for green bonds, blended finance, and concessional climate-linked instruments can attract private investment, reduce the cost of capital, and ensure that resilience and sustainability projects are adequately funded. Effective disclosure, including subsidy levels and project justification, further enhances investor confidence and underpins sustainable debt management.

Risks and how to reduce them

Implementing reforms to lower borrowing costs and unlock investment in Sub-Saharan Africa carries potential risks that need careful management:

  1. currency risk: heavy reliance on foreign-denominated debt exposes countries to exchange rate fluctuations, which can increase repayment costs and strain public finances. Mitigation: Issue debt in local currency where possible and use hedging instruments such as the FX Hedging Facility to manage foreign exchange exposure.

  2. investment risk: large-scale infrastructure and development projects may fail to generate expected returns, leaving governments or pension funds exposed to financial losses. Mitigation: Conduct rigorous project appraisals, diversify investment portfolios, and encourage private sector participation. For example, Nigeria’s pension fund regulator is promoting infrastructure investments to mobilize domestic capital safely.

  3. policy risk: unpredictable fiscal and monetary policies, weak governance, or overborrowing can deter investors, raise borrowing costs, and create financial instability. Mitigation: Implement predictable fiscal and monetary policies, strengthen governance frameworks, and publish credible medium-term fiscal strategies. Rwanda has successfully improved its credit outlook through policy stability and governance reforms.

  4. market risk: shallow financial markets and low liquidity can amplify the cost of raising funds, especially if reforms fail to attract sufficient domestic or international investors. Mitigation: Deepen domestic financial markets by simplifying listing rules, improving investor protections, and fostering secondary market liquidity, allowing governments and businesses to raise funds more efficiently.

  5. debt sustainability risk: even with reforms, high existing debt levels or short debt maturities can make countries vulnerable to debt distress, limiting fiscal space for development priorities. Mitigation: Enhance debt management capacity, restructure high-cost debt where feasible, and carefully sequence borrowing to balance short-term needs with long-term fiscal sustainability.

How to measure success

The effectiveness of reforms aimed at lowering borrowing costs and boosting investment in Sub-Saharan Africa can be measured using several key indicators. These metrics provide insight into whether policy actions are translating into tangible improvements in fiscal stability, market development, and investor confidence.

  1. lower borrowing costs: a decline in interest rates on government bonds reflects improved creditworthiness and reduced risk perception among investors. Lower spreads over benchmark rates, such as U.S. Treasuries, indicate that borrowing has become more affordable. An increase in the share of debt issued in local currency demonstrates reduced dependence on foreign-denominated debt, mitigating currency risk.

  2. increased investment flows: rising FDI inflows signal growing investor confidence in the region’s stability and growth prospects. Increased participation of institutional and private investors in sectors like energy, transport, and digital infrastructure indicates success in mobilizing capital. Tracking the volume and completion of infrastructure projects provides insight into whether financing is reaching critical sectors.

  3. improved debt sustainability: a declining or stable ratio indicates that borrowing levels are manageable relative to the size of the economy. Lower ratios show that governments have more fiscal space to fund social services and development priorities without being overwhelmed by debt obligations.

  4. financial market development: growth in the size and liquidity of domestic capital markets allows governments and businesses to raise funds more efficiently at lower cost. An increase in the number and variety of market participants signals stronger market resilience and confidence.

  5. stronger institutional frameworks: clear, consistent fiscal and monetary policies, along with transparent debt management, reduce uncertainty and encourage investment. Improvements in governance metrics, such as those measuring rule of law, accountability, and economic opportunity, reinforce investor trust and long- term sustainability.

By regularly tracking these indicators, governments and stakeholders can evaluate whether reforms are successfully lowering borrowing costs, attracting investment, and creating a more robust and resilient financial environment in Sub-Saharan Africa.

Conclusion

Lowering borrowing costs in Sub-Saharan Africa is not an abstract policy goal but a practical necessity for sustaining growth and development. It determines whether budgets are consumed by debt service or directed toward transformative investment. Success will depend on aligning domestic priorities with global capital flows and creating a financing environment where investment is not prohibitively expensive but productively deployed. The outcome will define the region’s capacity to turn its demographic and resource potential into durable economic strength.