Businesses and governments in Nigeria, Kenya, and South Africa are now paying significantly more to borrow than they did just a few years ago, according to a new report by Moody’s Ratings.
The agency said high interest rates, weak policy frameworks, and difficult market conditions have driven up the cost of loans and credit across the three largest economies in sub-Saharan Africa.
Moody’s warned that while all three countries urgently need financing to drive development and economic growth, their borrowing costs are far above those of advanced economies, with limited access to cheaper sources of funding making the situation worse.
“Borrowing costs are high across the board,” said Lucie Villa, Moody’s Senior Vice President. “Debt costs for banks, non-financial companies and governments have increased in all three markets alongside higher policy rates during the past five years.”
The report noted that concessional loans from development partners have helped soften the burden of foreign debt but have not been enough to offset the impact of persistently high interest rates in both domestic and international markets.
Borrowing costs on international markets have eased slightly, with interest spreads over U.S. Treasuries narrowing since 2022 for lower-rated Kenya and Nigeria. Still, Moody’s said these spreads remain elevated at around 500 basis points.
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Among the three, South Africa benefits from a stronger monetary policy framework and deeper domestic capital markets, which have kept its interest rates lower than those of Nigeria and Kenya.
Even so, Moody’s cautioned that South Africa’s borrowing costs remain high relative to many other emerging markets because of its fiscal constraints, according to Reuters.
“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 challenges, according to Moody’s, stem from government overborrowing and shallow local markets, which restrict access to affordable credit for private businesses.
In Nigeria, high inflation and low savings have limited the pool of low-interest credit available to companies, worsening funding pressures.
Moody’s concluded that addressing these structural problems will take time and will require stronger policies and more effective financial systems to sustainably reduce borrowing costs across the region.
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