African Governments Increasingly Turn to Multilateral Lenders as Debt Risks Persist, S&P Says

S&P Global

JOHANNESBURG, Feb 24 – African governments are expected to deepen their reliance on multilateral lenders and accelerate economic reforms in 2026 as debt vulnerabilities continue to constrain fiscal flexibility, according to S&P Global Ratings.

Samira Mensah, S&P’s Head of National Ratings and Analytics for Africa, said more than 20 countries across the continent face elevated debt risks or severe fiscal vulnerabilities, citing data from the International Monetary Fund. These pressures are pushing governments to seek more stable and predictable financing sources while strengthening economic resilience.

The shift comes as many African economies confront the structural risks associated with foreign currency borrowing, particularly Eurobonds, which expose sovereign balance sheets to exchange rate volatility and external shocks.

Despite these challenges, sovereign bond issuance in sub-Saharan Africa has rebounded strongly. Countries including Benin, Kenya, and Côte d’Ivoire have collectively raised approximately $6 billion in international debt markets this year, supported by easing borrowing costs and renewed investor appetite. Additional issuances are expected, including the Democratic Republic of Congo’s planned debut Eurobond offering.

Reform Momentum Supports Credit Improvements

S&P noted that sovereign credit performance across Africa showed mixed trends in recent years. Seven sovereign upgrades recorded in 2025 were largely driven by stronger economic growth prospects and reform implementation. However, some countries experienced downgrades or negative outlook adjustments due to policy setbacks and macroeconomic shocks.

Outlook revisions remain slightly skewed toward the negative, reflecting fiscal uncertainty in countries such as Senegal, Mozambique, and Madagascar. Conversely, South Africa’s outlook has improved, supported by reform momentum and efforts to address structural economic challenges.

Nigeria, Africa’s largest economy, was highlighted as a key reform case. While debt servicing costs remain high, structural reforms and policy adjustments are beginning to stabilize fiscal conditions and restore investor confidence.

Multilateral Institutions Emerging as Strategic Financing Partners

Multilateral development institutions are becoming increasingly central to Africa’s sovereign financing strategies. These institutions offer access to lower-cost funding and longer repayment periods compared with private capital markets, providing a more sustainable financing pathway for countries managing high debt burdens.

According to S&P, recent adjustments to multilateral lending criteria could unlock substantial additional funding capacity globally. These changes may enable between $600 billion and $800 billion in new sovereign lending worldwide, with Africa potentially securing between $90 billion and $120 billion based on proportional allocation estimates.

This expanded lending capacity could significantly improve liquidity conditions for African economies, particularly those facing limited access to international bond markets.

Eurobond Markets Remain Selectively Accessible

Although multilateral financing is becoming more prominent, African governments are not abandoning international debt markets. Instead, sovereigns are taking a more selective and strategic approach to bond issuance, balancing market opportunities with fiscal sustainability considerations.

The average cost of sovereign borrowing in Africa declined to approximately 7.7% in 2025, representing an improvement of about one percentage point compared with the previous year. However, borrowing conditions remain uneven, with weaker-rated sovereigns still facing elevated financing costs and constrained market access.

Structural Shift in Sovereign Financing Strategy

Africa’s evolving financing strategy reflects a broader structural shift toward diversified funding sources and reduced dependence on volatile external capital markets.

By combining multilateral financing, fiscal reforms, and selective market participation, governments are seeking to strengthen financial stability and reduce exposure to global economic volatility.

The transition toward more stable and concessional financing sources is expected to play a critical role in supporting long-term economic resilience, particularly as African economies navigate currency pressures, debt servicing obligations, and global financial uncertainty.