NAIROBI — Kenya is among three major African economies grappling with soaring borrowing costs that threaten growth and investment, according to a new study by Moody’s Ratings.
The report, released Monday, found that Kenya, Nigeria and South Africa have all seen the price of credit rise sharply in the past five years. Analysts blame policy weaknesses, inflation and unfavourable market conditions for the squeeze.
“Borrowing costs are high across the board,” said Lucie Villa, a senior vice president at Moody’s. She noted that debt servicing has become more expensive for governments, banks and companies alike as central banks have tightened monetary policy.
For Kenya, the problem is acute. The government’s reliance on borrowing, coupled with shallow domestic markets, has made it harder for businesses to access affordable credit. Moody’s warned that this could stifle investment at a time when the country urgently needs growth to meet rising development costs.
Nigeria faces similar challenges. High inflation and low household savings mean that affordable credit remains scarce for businesses. In South Africa, while capital markets are deeper and monetary policy more established, fiscal strains still push financing costs above those of many emerging-market peers.
International borrowing costs have eased somewhat since 2022. Spreads over U.S. Treasuries have narrowed for both Kenya and Nigeria. But at around 500 basis points, they remain well above levels seen in stronger economies.
South Africa fares slightly better, but Moody’s cautioned that it risks a “negative spiral” if high interest rates continue to deter investment while growth stays weak. “Without improvements, South Africa risks continuing a negative spiral in which high interest rates aimed at attracting inflows amid subdued growth limit domestic investment and further hinder economic prospects,” the agency said.
Moody’s also noted that support from development partners has softened the blow. Concessional loans, typically offered at lower interest rates, have helped reduce the cost of foreign currency debt. But they are not enough to offset high domestic and international market rates.
The agency concluded that fixing these structural imbalances — from policy frameworks to capital market depth — will take time. Until then, borrowing will remain expensive, leaving governments and businesses caught between urgent funding needs and a costly credit environment.
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