Borrowing costs in South Africa, Nigeria, and Kenya have surged over the past five years, driven by weak policy frameworks, inflationary pressures, and adverse market conditions, according to a new report by Moody’s Ratings.
The rating agency noted that while the three countries face growing funding needs to sustain development and growth, they continue to contend with interest rates significantly higher than those of advanced economies.
Limited capital inflows and shallow domestic markets have compounded the burden.
“Borrowing costs are high across the board,” said Moody’s Senior Vice President, Lucie Villa. “Debt costs for banks, non-financial companies, and sovereigns have increased in all three markets alongside higher policy rates during the past five years.”
Nigeria’s Debt Burden
In Nigeria, high inflation and low savings have restricted the availability of low-interest credit for businesses and households.
Moody’s observed that domestic borrowing remains expensive, and although development partners provide concessional financing, it is insufficient to offset the high costs of accessing local and international capital markets.
Nigeria has seen its international borrowing costs ease slightly, with spreads over U.S. Treasuries narrowing since 2022.
However, at around 500 basis points, the premium remains high compared to global peers. This, coupled with persistent inflationary pressures and foreign exchange volatility, continues to weigh on businesses and fiscal operations.
South Africa’s Fiscal Strain
South Africa benefits from deeper capital markets and a more effective monetary policy framework, allowing relatively lower borrowing costs compared to Nigeria and Kenya.
However, Moody’s warned that fiscal constraints keep rates elevated relative to many emerging market peers.
“Without improvements, South Africa risks continuing a negative spiral in which high interest rates aimed at attracting inflows amid subdued growth limit domestic investment and further hinder economic prospects,” the report stated.
Kenya’s Overborrowing Challenge
Kenya’s government has relied heavily on external borrowing, a strategy Moody’s says has left the economy vulnerable.
Overborrowing, combined with shallow local markets, has limited private-sector access to affordable credit. Rising debt-servicing costs have also heightened fiscal risks.
Structural Reforms Needed
Moody’s stressed that redressing imbalances that drive up borrowing costs will take time, requiring structural reforms and stronger policy frameworks. While international borrowing costs have moderated since 2022, local market conditions remain restrictive, keeping financing expensive for both sovereigns and corporates.
The report underscores the urgency for Nigeria, South Africa, and Kenya to strengthen policy execution, deepen local capital markets, and stabilize macroeconomic conditions to prevent high debt costs from undermining growth prospects.
