Nigeria, Peers Struggle with Surging Borrowing Costs, Says Moody’s

Nigeria, South Africa and Kenya are grappling with sharply higher borrowing costs as policy weaknesses, stubborn inflation and fragile market conditions choke access to affordable credit, global ratings agency Moody’s has warned.

In its latest credit outlook, Moody’s noted that debt-servicing pressures have risen steeply across sovereigns, banks and corporates in the three African economies over the past five years, even as the demand for development finance and growth investment has expanded.

“Borrowing costs are high across the board,” said Lucie Villa, Moody’s senior vice president. “Debt costs for banks, non-financial companies and sovereigns have increased in all three markets alongside higher policy rates during the past five years.”

The report said Nigeria remains particularly exposed, with persistently high inflation and chronically low savings stifling access to affordable credit for businesses. Policy inconsistencies, it added, have compounded the strain, leaving the cost of raising capital both locally and internationally well above peer markets.

While Nigeria and Kenya have seen their spreads over U.S. Treasuries ease since 2022, the premium remains elevated at around 500 basis points, reflecting lingering investor scepticism. Kenya’s challenges are worsened by excessive state borrowing and shallow domestic capital markets, while South Africa’s relatively deeper financial system still faces higher-than-peer costs due to fiscal fragility.

Moody’s cautioned that without reforms to strengthen policy credibility and tackle structural imbalances, these economies risk a vicious cycle where high interest rates, intended to attract inflows, suppress domestic investment and weaken growth prospects.