According to the International Monetary Fund (IMF), Africa is home to some of the world’s fastest-growing economies. Yet it remains the most expensive region for governments to access international capital.

From roads and railways to hospitals and schools, the price African countries pay to borrow has become one of the defining development challenges of the 21st century.

As governments, investors, and global financial institutions continue to debate the reasons behind the continent’s high borrowing costs, one question increasingly dominates the discussion: Is Africa paying for genuine economic risk, or for perceptions that no longer reflect its realities?

A continent growing fast but paying more.

On paper, Africa appears to be a continent on the rise. After weathering the shocks of the COVID-19 pandemic, supply chain disruptions, inflationary pressures, and geopolitical uncertainty, many African economies are once again recording impressive growth.

According to the IMF’s Regional Economic Outlook for Sub-Saharan Africa, the region is expected to maintain positive economic growth despite global headwinds.

The African Development Bank’s African Economic Outlook similarly projects that more than 40 per cent of African economies will record growth rates of at least five per cent.

The African Development Bank estimates that eleven of the world’s fifteen fastest-growing economies in 2025 will be in Africa. Together, these projections reinforce Africa’s growing reputation as an attractive investment destination, driven by its youthful population, rapid urbanisation, expanding digital economy, and abundant natural resources.

Yet beneath this optimism lies a persistent contradiction. At precisely the moment when African governments require unprecedented levels of investment to build roads, ports, power plants, hospitals, schools, and climate-resilient infrastructure, they face some of the highest borrowing costs in the world.

Despite these positive economic indicators, many African governments now find it considerably more expensive to raise money on international capital markets than countries with comparable income levels elsewhere.

While several emerging Asian economies access dollar-denominated financing at yields of around five per cent or lower, African sovereigns have frequently borrowed at yields approaching or exceeding nine per cent, with some issuances crossing the 10 per cent mark.

The difference may appear marginal, but in sovereign finance, a few percentage points can translate into billions of dollars over the lifespan of a loan.

A 2023 report by the United Nations Development Programme (UNDP) estimated that Africa loses about US$75 billion annually through higher borrowing costs and reduced investment linked to what it described as the “Africa premium.”

According to the report, roughly US$28 billion represents additional interest payments on existing debt, while almost US$46 billion reflects investment that never reaches the continent because perceived risks discourage capital flows.

The estimate has since been cited by the African Union (AU), the African Development Bank, the Africa Finance Corporation, and several African finance ministers in calls for reforms to the global financial system.

For countries striving to industrialise, create jobs, and achieve the Sustainable Development Goals, the implications are profound.

Every additional dollar spent servicing debt is a dollar unavailable for classrooms, hospitals, irrigation systems, electricity networks or transport infrastructure. Every delayed infrastructure project reduces productivity, slows trade, and weakens long-term economic growth.

The debate over Africa’s borrowing costs has therefore evolved beyond finance. It now touches on development, equity, and the rules that govern access to global capital.

From debt relief to expensive capital

Africa’s relationship with international borrowing has changed dramatically over the past three decades. During the early 2000s, debt relief initiatives such as the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) significantly reduced the debt burdens of several African countries.

With healthier balance sheets and renewed investor confidence, many governments gained access to international capital markets for the first time. The global environment appeared favourable. Commodity prices were rising, global interest rates remained relatively low and investors were increasingly searching for higher returns in frontier markets.

Nigeria returned to the Eurobond market in late 2025 after a two-year absence, attracting strong investor demand but still paying relatively high yields because of its credit rating.

Ghana defaulted in 2022, restructured its debt under the G20 Common Framework, and only began rebuilding investor confidence after reaching agreements with bondholders.

Also, Kenya, Zambia, Côte d’Ivoire, Senegal, and Rwanda began issuing Eurobonds to finance infrastructure, diversify their funding sources, and reduce reliance on concessional loans from multilateral institutions.

For a time, the strategy appeared successful. Borrowed funds helped finance highways, airports, power generation projects, and other public investments considered essential for long-term economic transformation. That favourable environment did not last.

The COVID-19 pandemic forced governments to increase spending while revenues declined sharply. Supply chain disruptions, the war in Ukraine, persistent inflation, and aggressive interest-rate increases by major central banks, particularly the United States Federal Reserve, changed investor behaviour almost overnight.

Investors shifted capital towards lower-risk assets, reducing the flow of funds to emerging and frontier markets. Emerging and frontier markets suddenly faced higher borrowing costs, tighter financing conditions and increased scrutiny from investors worried about debt sustainability.

African countries were not alone in facing these pressures. Many economists, however, contend that the continent was affected more severely than comparable emerging markets, reviving longstanding questions about how sovereign risk is assessed.

Understanding sovereign borrowing

Like businesses and households, governments borrow when revenues are insufficient to finance development priorities.

Some borrowing takes place domestically through treasury bills and government bonds. Governments also borrow internationally by issuing sovereign bonds, commonly known as Eurobonds, or by accessing loans from multilateral institutions such as the World Bank and the African Development Bank.

When investors purchase sovereign bonds, they are effectively lending money to a government with the expectation that it will repay both the principal and the agreed interest.

The interest rate, or yield, reflects the market’s assessment of risk. Countries viewed as financially stable with strong institutions, predictable policies, and sustainable debt levels generally borrow at lower interest rates.

Those perceived to face greater economic or political uncertainty pay more because investors demand higher returns to compensate for increased risk.

Borrowing costs are shaped by a complex mix of factors. These include debt-to-GDP ratios, fiscal deficits, inflation, foreign exchange reserves, exchange-rate stability, economic growth prospects, governance, institutional strength, political stability, and prevailing global financial conditions.

Investors also pay close attention to a country’s repayment history, export performance, external debt obligations and its ability to withstand economic shocks.

In essence, sovereign borrowing is a reflection not only of current economic conditions but also of investor confidence in a country’s future. Confidence, however, is shaped by more than economic indicators alone. This is where one of the central debates in international finance begins.

Why Africa pays more?

No single explanation fully accounts for Africa’s comparatively high borrowing costs. Economists generally agree that domestic economic fundamentals explain part of the picture. Several African countries continue to grapple with rising public debt, narrow tax bases, foreign exchange shortages, inflationary pressures, and fiscal deficits.

In some countries, insecurity, political uncertainty and dependence on commodity exports have also heightened investor concerns. These domestic challenges have been compounded by global financial conditions.

After inflation surged following the COVID-19 pandemic, central banks in advanced economies raised interest rates aggressively, prompting investors to shift capital towards safer assets such as US Treasury securities.

Some analysts, however, argue that these factors do not fully explain why African countries consistently pay more than economies with comparable macroeconomic indicators elsewhere.

According to the Organisation for Economic Co-operation and Development’s (OECD) Africa Capital Markets Report 2025, African sovereigns have recorded the highest yields on US dollar-denominated bonds among emerging market regions for more than a decade.

 In 2024, African sovereign bond yields averaged about 9 per cent, compared with approximately 6.5 per cent in Latin America and 4.7 per cent in emerging Asia.

Among African policymakers, that persistent gap raises an important question: If countries with similar debt levels, growth rates, and income classifications pay substantially different borrowing costs, what else influences investor decisions?

It is this question that has fuelled discussions around what has become known as the “Africa premium.”

The Africa premium: Perception or reality?

Proponents of the “Africa premium” theory believe international financial markets continue to view Africa through an overly broad lens, often treating the continent as a single investment destination despite its 54 countries having vastly different political systems, economic structures, and fiscal records.

A country implementing difficult economic reforms, strengthening public finances, and improving governance, they argue, can still be affected by broader concerns about the region.

The debate gained renewed prominence after the United Nations Development Programme’s 2023 report estimated that perceptions embedded in sovereign credit assessments and investment decisions cost African countries about US$75 billion annually.

The report has since been widely cited by the African Union, the African Development Bank, the Africa Finance Corporation, and African finance ministers calling for reforms to the international financial architecture. They stress that the issue is not about seeking favourable treatment.

Rather, they argue that African economies should be assessed based on country-specific realities instead of assumptions associated with the continent.

Not all economists share that view. Many cautions against attributing higher borrowing costs solely to perception.

They note that investors are required to price risk, not potential. Concerns about debt sustainability, exchange-rate volatility, governance, institutional capacity, and political uncertainty remain legitimate considerations when lending to sovereign borrowers.

Recent debt defaults and restructurings in countries such as Zambia and Ghana have also reinforced investor caution, making markets more sensitive to risks across the continent.

The central question, therefore, is not whether risk exists. It is whether African risk is consistently priced more heavily than similar risks elsewhere.

The role of the ‘Big Three’

At the centre of this discussion are three companies whose assessments shape investment decisions across global financial markets: Moody’s Ratings, S&P Global Ratings and Fitch Ratings.

Collectively known as the “Big Three,” these agencies assign sovereign credit ratings that indicate the likelihood a government will meet its debt obligations. Their assessments influence not only borrowing costs but also the investment decisions of pension funds, insurance companies, asset managers, and commercial banks worldwide.

In many cases, institutional investors are required by their investment mandates to hold assets above a certain credit rating. A downgrade can therefore reduce the pool of potential investors almost immediately, while an upgrade can lower borrowing costs by expanding market demand. The agencies evaluate governments using a broad set of indicators.

These include economic growth, debt affordability, fiscal performance, inflation, external balances, foreign exchange reserves, monetary policy, institutional quality, governance, and political stability.

The discussion gained renewed attention in 2026 as African institutions, including the African Peer Review Mechanism, intensified calls for greater transparency and contextual understanding in sovereign credit assessments by global rating agencies.

From the agencies’ perspective, higher borrowing costs simply reflect higher levels of perceived risk.

African policymakers take a different view that the methodologies do not always capture the complexity of African economies.

Critics also note that rating models were originally developed around advanced financial systems with decades of reliable data, deep capital markets, and extensive borrowing histories.

African economies often have large informal sectors, younger financial markets, and development trajectories that differ significantly from those of industrialised nations.

Where statistical information is limited, critics argue, qualitative assessments covering governance, institutional effectiveness, and political stability can assume greater importance, increasing the possibility that perception influences outcomes.

The African Peer Review Mechanism (APRM) has repeatedly called for sovereign risk assessments that better recognise ongoing reforms, improvements in governance, demographic trends, and long-term development potential.

The discussion gained renewed attention in early 2026 when inaccuracies appeared in an S&P publication on African credit trends, prompting criticism from African institutions and reigniting questions about the depth of regional expertise available to global rating agencies.

While the errors were later corrected, they strengthened calls for greater African participation in sovereign credit analysis.

International investors, however, offer a different perspective. Portfolio managers argue that financial markets respond to uncertainty rather than geography. Their primary responsibility is to protect investors’ capital, making them naturally cautious when countries face currency instability, fiscal pressures, election-related uncertainty, or debt restructuring risks.

They also point out that sovereign bond markets reward credibility over time. Countries that consistently implement reforms, improve fiscal discipline, strengthen institutions, and honour debt obligations generally experience lower borrowing costs as investor confidence grows. Recent developments provide evidence of that dynamic.

Nigeria’s Eurobond issuance in late 2025, according to the IMF, attracted orders far exceeding the amount offered, reflecting strong investor appetite despite its sub-investment-grade rating. Its 2026 Projections show that Nigeria ranks among the Top 10 global contributors to real GDP growth, accounting for roughly 1.5% of total worldwide expansion. This structural data is pivotal when Nigeria structures international roadshows for foreign debt.

Ghana regained market confidence following progress on debt restructuring, while Kenya has continued implementing fiscal consolidation measures aimed at reducing its debt burden. These examples suggest investors are willing to reward credible reforms.

The challenge, African policymakers argue, is ensuring that sovereign ratings and borrowing costs adjust quickly enough to reflect those improvements rather than lagging behind economic realities.

When debt crowds out development

For many, the debate over sovereign bond yields and credit ratings can seem distant from everyday life. Yet the consequences are felt in communities across the continent.

Every kilometer of road left unpaved, every hospital expansion delayed, every classroom left unbuilt, and every power project postponed reflects difficult fiscal choices governments are forced to make when debt servicing consumes a growing share of national revenue.

According to the African Development Bank, Africa faces an annual infrastructure financing gap of between US$68 billion and US$108 billion. Closing that gap is essential if the continent is to improve transport networks, expand electricity access, strengthen digital infrastructure, and fully realise the opportunities presented by the African Continental Free Trade Area (AfCFTA). High borrowing costs make that task considerably harder.

As governments devote more resources to servicing existing debt, less money remains for capital expenditure and essential public services. In several African countries, debt servicing now competes directly with spending on health, education, and social protection. The implications extend beyond annual budgets.

Delayed infrastructure reduces productivity, increases the cost of doing business and discourages private investment. Poor transport networks make it more expensive for farmers to move produce to markets. Unreliable electricity raises production costs for manufacturers.

Underfunded education systems weaken the quality of future workforces, while overstretched healthcare systems reduce resilience against future public health emergencies. Economists warn that this creates a difficult cycle.

Higher borrowing costs limit investment in growth-enhancing sectors. Slower growth weakens government revenues and fiscal indicators. Those weaker indicators can, in turn, reinforce perceptions of higher risk, making future borrowing even more expensive.

Breaking that cycle has become one of the continent’s most pressing economic challenges.

Debt sustainability and the balancing act

Another concern is debt sustainability. According to the IMF–World Bank Debt Sustainability Framework, the number of African countries facing debt distress or at high risk of debt distress has increased significantly over the past decade. The COVID-19 pandemic, rising global interest rates, and currency depreciation have placed additional pressure on government finances.

Debt itself is not necessarily a problem. Economists generally agree that borrowing can accelerate development when funds are invested in productive sectors that generate economic returns exceeding the cost of financing. Problems arise when borrowing becomes too expensive, revenues fall short of expectations, or external shocks make repayment increasingly difficult. This is why fiscal discipline remains central to the debate.

Analysts say improving domestic revenue mobilisation, strengthening public financial management, increasing debt transparency, and ensuring borrowed funds are invested efficiently are just as important as securing fairer borrowing terms internationally.

While improving fiscal discipline remains essential, many economists argue that reducing borrowing costs will also require expanding the range of financing options available to African governments.

Broadening Africa’s Financing Options

While international capital markets remain an important source of development finance, many economists argue that African countries will need a broader mix of financing instruments if they are to reduce their exposure to expensive external borrowing.

One option is the continued development of domestic capital markets. By issuing more government securities in local currency, countries can reduce their dependence on foreign-currency debt and limit exposure to exchange-rate fluctuations. Deeper domestic bond markets can also mobilise long-term savings from pension funds, insurance companies and institutional investors, providing governments with a more stable source of financing.

Public-Private Partnerships (PPPs) have also gained prominence across the continent. Under carefully structured arrangements, private investors can finance, build and operate infrastructure projects such as roads, ports, airports, and power plants, while governments provide regulatory oversight and share certain risks.

Although PPPs are not a substitute for sound public investment, they can ease fiscal pressures when transparently managed. Another growing area is blended finance, which combines concessional funding from development finance institutions with private capital to reduce investment risks.

Multilateral institutions such as the African Development Bank, the World Bank, the International Finance Corporation (IFC), and the Africa Finance Corporation have increasingly used guarantees, first-loss mechanisms, and co-financing arrangements to attract private investment into sectors such as renewable energy, agriculture, transport, and digital infrastructure.

African governments are also diversifying their financing sources through thematic bonds. Green bonds, sustainability-linked bonds and blue bonds are being used to finance climate adaptation, renewable energy, environmental conservation and sustainable infrastructure.

 These instruments have attracted growing interest from investors seeking projects that meet environmental, social and governance (ESG) standards.

Some countries have successfully issued Sukuk, or Islamic bonds, to finance infrastructure while broadening their investor base.

Others have explored diaspora bonds, tapping into the savings of Africans living abroad who are willing to invest in their countries of origin under appropriate conditions.

Regional financial institutions are expected to play an increasingly important role as well. The African Development Bank, Afreximbank, the Africa Finance Corporation, and emerging continental financial institutions have expanded efforts to provide long-term financing tailored to Africa’s development needs.

Supporters argue that strengthening these institutions could reduce dependence on volatile international capital markets while promoting greater regional financial resilience.

Even so, economists caution that no financing mechanism can substitute for sound macroeconomic management. Expanding financing options may lower borrowing costs over time, but sustained investor confidence ultimately depends on prudent fiscal policies, transparent debt management, stronger institutions, and productive investment.

Africa’s answer: A new credit rating agency

Against this backdrop, African leaders have embarked on one of the continent’s most ambitious financial initiatives in recent years the establishment of the African Credit Rating Agency (AfCRA).

The agency, championed by the African Union and developed through the African Peer Review Mechanism, is expected to provide an African-based assessment of sovereign creditworthiness while operating as an independent, private-sector-led institution.

Supporters believe AfCRA can help address long-standing concerns that existing rating methodologies do not adequately reflect African realities, reform trajectories or development contexts.

President William Ruto of Kenya, speaking during the agency’s launch, argued that Africa has for too long been assessed through “flawed models, outdated assumptions and systemic bias” that exaggerate investment risks and increase borrowing costs.

But supporters acknowledge that credibility cannot be assumed.

International investors have relied on Moody’s, S&P Global Ratings and Fitch for decades. For AfCRA to influence market pricing, it will need to demonstrate analytical independence, methodological transparency, and consistency over time.

Researchers at Chatham House have cautioned that if the agency is perceived as assigning more favourable ratings simply because it is African, institutional investors may question its objectivity. African officials insist that this is not the agency’s purpose. Its objective, they argue, is not to produce optimistic ratings but to produce accurate ones.

Whether global investors ultimately incorporate AfCRA’s assessments into their investment decisions could determine how much influence it has on borrowing costs over the coming decade.

Beyond Borrowing Costs: What the Debate Says About the Global Financial System

The debate over Africa’s borrowing costs has evolved into a broader conversation about the structure of the international financial system and whether it adequately reflects the realities of developing economies.

For many African governments, the issue extends beyond the cost of capital. It raises questions about how global financial risks are assessed, who sets the standards for evaluating sovereign creditworthiness, and whether existing institutions provide equitable access to development finance.

Calls for reform have intensified in recent years. The African Union, the African Development Bank, the United Nations Development Programme, and other international organisations have advocated changes to the global financial architecture, including more transparent sovereign credit rating methodologies, greater representation of developing countries in international financial decision-making, and expanded access to affordable long-term finance.

These discussions also form part of wider international efforts to reform the Bretton Woods institutions and multilateral development banks.

Proposals under consideration include increasing the lending capacity of development banks, improving debt restructuring mechanisms, expanding the use of guarantees to mobilise private investment, and making climate and development finance more accessible to low- and middle-income countries.

The emergence of the African Credit Rating Agency reflects a broader desire by African countries to participate more actively in shaping the financial institutions that influence their economies.

While global investors will ultimately determine its market influence, the initiative signals Africa’s growing determination to contribute its own analytical perspective to international capital markets.

At the same time, many economists emphasise that reforms to the global financial system and improvements in domestic governance should be viewed as complementary rather than competing priorities. Fairer access to capital is unlikely to deliver lasting benefits without continued efforts to strengthen fiscal discipline, improve public financial management, diversify economies, and build resilient institutions.

Ultimately, the debate over Africa’s borrowing costs illustrates the growing interdependence of global finance. As emerging and developing economies account for an increasing share of global growth, ensuring that capital is priced fairly and allocated efficiently has become not only a regional concern but also a matter of global economic stability and sustainable development.

Reducing borrowing costs will also require African countries to diversify how they finance development. Economists increasingly advocate deeper local currency bond markets, allowing governments to borrow more in domestic currencies and reduce exposure to exchange-rate fluctuations.

Others point to the importance of multilateral development finance. Institutions such as the African Development Bank, the World Bank, and other regional development banks continue to provide concessional loans at significantly lower interest rates than commercial markets, particularly for infrastructure, agriculture, healthcare and climate resilience.

There is also growing interest in blended finance, which combines public and private capital to reduce investment risk, as well as green bonds, sustainability-linked bonds, diaspora bonds, and public-private partnerships.

African governments are being encouraged to strengthen tax administration, expand domestic revenue mobilisation, improve public expenditure efficiency, and deepen regional financial markets. Together, these measures could reduce dependence on expensive external commercial borrowing while improving long-term fiscal resilience.

A debate about the future of global finance

The discussion surrounding Africa’s borrowing costs has become part of a broader international conversation about reforming the global financial system. Developing countries have increasingly argued that institutions and rules established decades ago must evolve to reflect changing economic realities, particularly as climate change, demographic shifts, and infrastructure financing needs reshape development priorities.

For Africa, the debate is not simply about securing cheaper loans. It is about ensuring that access to finance reflects evidence, rewards credible reforms, and supports long-term development rather than constraining it.

There is broad agreement that African governments must continue to strengthen governance, improve fiscal discipline, enhance debt transparency, and implement reforms that build investor confidence.

There is also growing recognition among many policymakers and researchers that greater transparency in sovereign risk assessments, richer country-specific data, and more diverse analytical perspectives could improve confidence in African capital markets.

Ultimately, narrowing Africa’s borrowing gap will require action on both sides.

Governments must continue implementing sound economic policies and demonstrating fiscal responsibility. Credit rating agencies and investors, in turn, must ensure that sovereign assessments evolve alongside changing economic realities and are grounded in robust, country-specific analysis.

As Africa seeks to finance its development ambitions from industrialisation and digital transformation to climate adaptation and the aspirations of Agenda 2063 the cost of capital will remain one of the defining issues shaping its future.

The continent’s fastest-growing economies have demonstrated resilience in the face of repeated global shocks. The next challenge is ensuring that resilience is matched by fair and sustainable access to finance. The question is no longer whether it should borrow to invest in its future. The real question is whether the global financial system can price that future with the accuracy, fairness, and confidence it deserves