IMF WARNS AFRICAN ECONOMIES OVER RISING DEBT RISKS

Barbara Bako, Bangkok.

The International Monetary Fund (IMF) has urged African economies to strengthen debt management, improve borrowing transparency and build fiscal buffers as rising global borrowing costs threaten to increase refinancing pressures across emerging markets.

The warning came during a press briefing on the October 2026 Global Financial Stability Report at the ongoing IMF-World Bank Annual Meetings in Bangkok, Thailand, where officials highlighted the vulnerability of economies that depend on foreign-currency borrowing to finance public spending and meet external obligations.

Athanasios Vamvakidis, Deputy Director of the IMF’s Monetary and Capital Markets Department, said emerging markets had remained resilient, supported by strong economic fundamentals and sound domestic policies. 

However, he cautioned that high government bond yields and historically narrow risk spreads could leave these economies exposed to a sudden deterioration in global financial conditions.

“Transparency is often a good way to reassure investors and ensure that market stays open for many emerging market economies, including the ones in Africa, that need to borrow in hard currency,” Vamvakidis said.

For African countries that rely on international capital markets, a reversal in investor sentiment could raise the cost of issuing new debt, increase the expense of refinancing maturing obligations and reduce access to foreign-currency financing.

The IMF identified developments in advanced economies, renewed energy price shocks and changes in investor risk appetite as potential triggers for higher borrowing costs. 

These pressures could affect even countries with relatively strong fundamentals if global investors become less willing to hold riskier assets.

Vamvakidis emphasised the importance of debt transparency, particularly for emerging economies that borrow in hard currencies. 

Clear disclosure of outstanding obligations can help investors assess sovereign risks and support continued access to international capital markets.

For African governments, this means maintaining reliable information on public debt, financing commitments and repayment obligations, while improving fiscal planning to reduce uncertainty surrounding future borrowing needs.

The Fund also stressed the importance of addressing fiscal imbalances and placing public debt on a sustainable path. 

Countries facing persistent budget deficits may become more vulnerable when bond yields rise, as higher interest payments increase pressure on public finances and complicate debt management.

The risk is particularly significant when governments must refinance existing obligations at higher interest rates while competing with private borrowers for available funding.

The IMF noted that central banks in advanced economies were reducing their balance sheets, leaving private investors to absorb a greater share of government and corporate debt issuance. 

This shift could make market conditions more sensitive to changes in investor demand.

Higher energy prices and persistent inflation could further complicate the outlook by increasing import costs and adding pressure to government budgets in vulnerable economies.

The Fund therefore urged policymakers to use the current period of relative market resilience to strengthen financial systems, build adequate buffers and prepare for potential shocks before financing conditions deteriorate.

Reacting to the report, Eric LeCompte, Executive Director of Jubilee USA Network and a United Nations finance expert, warned that excessive optimism about artificial intelligence (AI) investment could hurt financial markets and restrict developing countries’ access to finance.

In a statement issued in Bangkok on October 13, LeCompte said overly optimistic expectations about AI-driven economic growth could have consequences beyond technology markets, affecting financing available to developing economies.

He also highlighted rising government borrowing costs and increasingly complex, non-transparent debt arrangements as threats to developing countries.

“The Fund is sounding an alarm about more complex and nontransparent forms of debt in developing countries,” LeCompte said.

The concerns come as central banks in advanced economies reduce their balance sheets, leaving private investors to absorb a greater share of government and corporate debt issuance. 

Combined with persistent inflation and higher energy prices, the shift could make financing conditions more sensitive to changes in investor demand.

For African governments, the risks reinforce the importance of sustainable public finances, clear disclosure of debt obligations and adequate financial buffers to manage external shocks.

A sharp correction in AI-related investments could further tighten global financial conditions, adding pressure to economies already exposed to rising borrowing costs and volatile capital flows.