US Fed tightening shows Africa needs domestic debt, foreign equity, S&P says

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US Fed tightening shows Africa needs domestic debt, foreign equity, S&P says
US Fed tightening shows Africa needs domestic debt, foreign equity, S&P says

Africa-Press – Eswatini. The prospect of a series of interest-rate increases by the US Federal Reserve highlights the need for African countries to increase savings rates so that banks can provide debt finance in local currencies, S&P Global Ratings sovereign specialist Frank Gill tells.

Debt levels in Africa are now higher than before the pandemic and rising US interest rates are increasing the risk-free rate globally, Gill says.

Research from S&P predicts that the Fed will raise rates at least another three times this year, by 50 basis points each time. S&P projects a further four or five increases in 2023. So the danger is that the flow of non-resident debt finance into Africa will be “highly volatile,” Gill says. Building up domestic savings rates to insulate against resulting volatility in non-resident lending inflows is “clearly the best way forward.”

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