The International Monetary Fund (IMF) has warned that while economies in Sub-Saharan Africa remain stable there is a growing reliance on domestic borrowing, which could create new fiscal and financial vulnerabilities.

This is according to the IMF’s latest Regional Economic Outlook for Sub-Saharan Africa.

The IMF says that governments in the region, squeezed out of international credit markets, are increasingly funding themselves at home.

The Fund argues that this shift threatens to crowd out private investment and place significant strain on local banking systems.

Across the continent, twenty countries are now judged to be in or near debt distress. The IMF finds that domestic financing, once considered a safer alternative to foreign debt, has become both expensive and risky.

Local markets in many African countries remain shallow, fragmented, and costly to access, with high transaction fees and limited long-term liquidity. Sovereign yields remain elevated, and interest payments now consume more than 40% of government revenue in several economies, including Kenya and Nigeria. By comparison, South Africa’s interest payments account for nearly 20% of government revenue.

The report highlights a growing: “bank sovereign nexus,” where commercial banks are overexposed to state debt. The IMF warns this mutual dependence could turn fiscal weakness into a wider financial crisis.

As governments borrow more from banks, credit to the private sector dries up. Any loss of confidence in sovereign debt then threatens banking stability itself.

On growth, however, the region remains resilient. The IMF projects GDP will expand by 4.1% in 2025 and 4.4% in 2026, supported by reform momentum in key markets such as Nigeria and Ethiopia.

Benin is expected to grow 7.0% in 2025 and 6.7% in 2026. Côte d’Ivoire will expand 6.2% and 6.3%, while Ethiopia is forecast at 6.2% and 6.4%, making these the continent’s fastest-growing economies.

Meanwhile, Nigeria is projected to grow by 3.1% in 2025 and 3.3% in 2026 while South Africa is forecast to expand by only 1.1% in 2025 and 1.3% in 2026, held back by weak investment.