IMF highlights risks of domestic borrowing in sub-Saharan Africa - Reuters

Sub-Saharan Africa faces a mounting fiscal crisis that demands immediate attention from European investors and business operators across the continent. The International Monetary Fund has sounded fresh alarms about the region's accelerating reliance on domestic borrowing—a trend that threatens macroeconomic stability and could reshape investment returns across multiple sectors. The dynamics behind this shift are straightforward but consequential. As international capital markets have tightened following global interest rate hikes, African governments have increasingly turned inward, borrowing from domestic banks, pension funds, and central banks to finance deficits. While this may appear as a pragmatic pivot away from volatile foreign exchange markets, the IMF warns it creates dangerous structural imbalances that ultimately harm long-term economic performance. **The Hidden Mechanics of Domestic Debt Risk** Domestic borrowing crowds out private sector credit availability. When governments absorb available liquidity through treasury bills and bonds, commercial banks face reduced capacity to lend to businesses. For European entrepreneurs operating manufacturing, logistics, or retail operations across sub-Saharan Africa, this translates directly into higher borrowing costs, longer approval timelines, and stricter collateral requirements. A German manufacturing firm seeking expansion capital in Kenya or Ghana now faces 14-18% lending rates compared to 8-10% rates just three years ago—a margin