Global rate hikes put African currencies under renewed pressure —Report

Higher Japanese interest rates could increase the cost of such funding and trigger the unwinding of these trades, putting further pressure on African currencies, the bank said.

The bank said African governments and companies would also face higher debt-servicing costs because much of the region’s external borrowing was priced against United States Treasury yields or floating dollar benchmarks.

“This matters beyond the current cycle,” the bank said, warning that long-term borrowing costs were likely to remain above levels seen during the 2010s.

The bank attributed the structural rise in long-term yields to persistent fiscal deficits, ageing populations, increased defence spending and growing demand for capital linked to artificial intelligence investment.

It said the normalisation of the term premium, which had previously remained suppressed, was also contributing to higher borrowing costs.

“External finance is therefore unlikely to return to 2010s conditions, even once the war premium fades,” it said.

The outlook presents an additional challenge for African economies that rely heavily on foreign capital to finance government spending, infrastructure and private-sector investment.

Weaker currencies could further increase the local-currency cost of servicing external debt, putting additional pressure on government finances and private-sector borrowers across the region.

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