According to Amadou Sy, Assistant Director in the International Monetary Fund\u2019s (IMF) African Department, the trend reflects both necessity and opportunity, as countries seek to reduce their exposure to currency volatility and strengthen local capital markets.<\/p>\n
<\/p>\n
This week, Sy explained that the key distinction between external and domestic debt lies not in currency but in the residency of creditors. \u201cWhen a government issues debt to non\u2011residents, even in local currency, it is classified as external debt,\u201d he said. Domestic debt, by contrast, is issued to residents, typically denominated in local currency and governed by domestic legal frameworks.<\/p>\n
<\/p>\n
The shift is partly a response to tightening global conditions. After the decline of concessional financing and the rise of Eurobond markets in the 2000s and 2010s, many African governments began borrowing in dollars and euros. But by 2023, all African issuers had effectively been shut out of international capital markets. This forced governments to rely more heavily on domestic debt issuance.<\/p>\n
Sy said local borrowing reduces currency risk and gives governments greater control. \u201cWhen you borrow in your own currency, it is much more manageable to repay,\u201d he noted. However, domestic debt often comes with higher interest costs and shorter maturities, increasing rollover risks. \u201cAfter six or twelve months, you have to borrow again, and investors may demand higher rates,\u201d he cautioned.<\/p>\n
<\/p>\n
Rising debt service burdens are already crowding out development spending. \u201cFor the median African country, about one\u2011seventh of revenues goes to servicing debt,\u201d Sy said. \u201cThis limits investment in health, education and infrastructure.\u201d<\/p>\n
<\/p>\n
Sy stressed that developing robust domestic debt markets requires stable macroeconomic conditions, lower inflation and strong regulatory frameworks. Expanding the investor base beyond banks to include pension funds and insurance companies is essential, as is building a transparent, liquid yield curve that can also support private\u2011sector financing. Foreign investors are showing increasing interest in local\u2011currency African bonds, but Sy warned that such inflows must be managed carefully. \u201cThis \u2018hot money\u2019 can move in and out quickly and affect exchange rates,\u201d he said.<\/p>\n
<\/p>\n
Ultimately, Sy argued, the rise of domestic debt could strengthen Africa\u2019s financial autonomy, provided it is part of a deliberate, long\u2011term strategy. \u201cIt takes time to build, but it is feasible, and it should be done,\u201d he said.<\/p>\n
<\/p>\n
–IMF\/ChannelAfrica–<\/p>\n","protected":false},"featured_media":28716,"template":"","meta":{"_acf_changed":false,"_links_to":"","_links_to_target":""},"news-type":[78,44],"class_list":["post-28715","news","type-news","status-publish","has-post-thumbnail","hentry","news-type-featured","news-type-finance","entry"],"acf":{"short_description":"African governments are increasingly turning to domestic borrowing to finance development, marking a significant shift away from decades of reliance on external debt issued in overseas markets.","published_date":"","news_description":"African governments are increasingly turning to domestic borrowing to finance development, marking a significant shift away from decades of reliance on external debt issued in overseas markets.","form_embed":"","author":"","image_caption":""},"_links":{"self":[{"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/news\/28715","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/news"}],"about":[{"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/types\/news"}],"version-history":[{"count":1,"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/news\/28715\/revisions"}],"predecessor-version":[{"id":28717,"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/news\/28715\/revisions\/28717"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/media\/28716"}],"wp:attachment":[{"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/media?parent=28715"}],"wp:term":[{"taxonomy":"news-type","embeddable":true,"href":"https:\/\/www.channelafrica.co.za\/channelafrica\/wp-json\/wp\/v2\/news-type?post=28715"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}