A recent study by Moody’s Ratings has revealed that borrowing costs for governments and businesses in Nigeria, South Africa, and Kenya have increased over the past five years. The report attributes this rise to policy weaknesses, unfavorable market conditions, and inflation. Despite the need for funding to support development and growth, these economies face high interest rates, limited sources of capital, and substantial funding needs.

According to the report, South Africa, Kenya, and Nigeria, the three largest markets in Sub-Saharan Africa, face a combination of structural weaknesses that keep borrowing costs high. Moody’s notes that more effective policy frameworks would support lower debt financing costs. The report highlights that debt costs for banks, non-financial companies, and sovereigns have increased in all three markets, alongside higher policy rates during the past five years.

In South Africa, despite advanced financial markets, borrowing costs are higher than in many emerging market peers. The country’s economic and fiscal constraints contribute to these high costs, which may continue to hinder economic prospects if not addressed. Kenya’s uncertain policies and shallow markets also keep debt costs high, despite moderate inflation. The country’s limited savings and large informal economy constrain market depth, making it challenging for companies to access market debt.

In Nigeria, high inflation and limited savings raise the country’s borrowing costs. However, the country’s financial markets are better at channeling funds to companies than Kenya’s, partly due to lower competing demand from sovereign funding needs. Recent reforms aim to establish robust financial markets, especially for foreign exchange, and strengthen monetary policy transmission channels.

Moody’s advises that more effective policy frameworks would support lower debt financing costs. The report emphasizes that Sub-Saharan African economies face significant development funding needs, hindered by limited equity and high debt costs. The study suggests that building policy continuity and strong relationships with development partners will aid progress in addressing these challenges.

The high borrowing costs in these countries have significant implications for their economic growth and development. When interest rates rise, sovereigns and companies are more exposed, resulting in lower or slower investments and reduced growth. The report highlights the need for these countries to address their structural weaknesses and implement more effective policy frameworks to support lower debt financing costs and promote economic growth.