Rising debt, rising distress leave Africa adrift

In early 2026, a single rating action exposed the brittle fault lines of global finance. Fitch downgraded the African Export-Import Bank, or Afreximbank, to junk status. It then withdrew its ratings entirely after Afreximbank severed the relationship. What looked like a technical skirmish between a lender and an agency quickly became a diplomatic grenade rolling across the continent’s balance sheets.
This was never just about one bank. Afreximbank was created almost 40 years ago precisely to keep trade credit flowing when commercial markets slammed their doors on Africa. Now, for doing exactly that job — lending to Ghana during its debt restructuring — the bank was penalized for losing its preferred creditor status.
The irony is brutal: Fulfill your development mandate, and the rating agencies will call you risky.
Afreximbank’s move to terminate the rating before the downgrade went public showed rare defiance. But defiance or an act of institutional self-assertion does not pay down debt or reopen trade credit lines. After all, crossing from a BBB- rating to BB+ can widen borrowing spreads by more than 100 basis points in emerging markets. For a bank running over $40 billion in assets and financing much of that through external debt, every extra basis point translates directly into higher costs for trade finance throughout the continent.
Africa still pays a staggering premium simply because of how risk is perceived rather than how it performs. Infrastructure default rates on the continent run at just 2.6 percent, among the lowest in the world. But credit ratings often miss this reality. A UN agency calculated that 16 African countries collectively overpay more than $74 billion in debt servicing costs because their ratings sit lower than their actual economic fundamentals warrant.
Moreover, only three of the 34 rated African countries hold investment-grade status. The remaining 38 percent of the continent is entirely unrated, which translates to a punitive guessing-game premium. Meanwhile, every non-investment-grade borrower pays a substantial markup that is not a reflection of true default probability. Instead, it is a structural tax imposed by a system that lacks enough data points on Africa and, therefore, defaults to negative assumptions.
Even more troubling, credit ratings in Africa function less like neutral opinions and more like assessments, a distinction the International Organization of Securities Commissions recognized back in 2015. That means the consequences are heavier. A downgrade actively creates risk by raising borrowing costs, triggering forced selling from institutional investors, and shrinking fiscal space for essential spending.
Worse yet, a new geopolitical wound opened early this year. The US-Iran war effectively closed or severely restricted both the Strait of Hormuz and the Bab Al-Mandab, creating a double maritime chokehold. For Egypt, the impact has been catastrophic. Suez Canal revenues have dropped by roughly 40-60 percent, representing an annual loss approaching $10 billion. Egypt is a major Afreximbank shareholder, and its financial distress directly feeds back into the bank’s risk profile.
For the continent’s other economies, the rerouting of ships around the Cape of Good Hope adds 10-15 days to transit times. Fuel, fertilizer, and food imports have all surged in cost. Inflationary pressures that were finally cooling are heating up again. And because Afreximbank now faces higher borrowing costs itself, the trade finance facilities that could soften these shocks are becoming more expensive just when they are needed most. 

The cost of everything is rising, the margin for error is shrinking, and the clock is running.

Hafed Al-Ghwell

And, unlike the previous two decades, when the continent would simply “look East” when the West retreated, the era of Beijing functioning as Africa’s lender of last resort is over. Between 2020 and 2024, the continent experienced a net outflow of roughly $22 billion to China, meaning repayments on existing loans exceeded new disbursements. Beijing has quietly but decisively shifted from building mega-infrastructure to demanding repayment. New loans are smaller, more targeted, and increasingly denominated in renminbi rather than dollars.
And the timing could not be worse.
Africa is still reeling from a “fiscal long COVID.” Governments everywhere postponed hard choices during the pre-pandemic era of ultra-low interest rates. However, that era ended abruptly, and now global public debt is on track to breach 100 percent by 2028 — peacetime levels never seen before. For low-income countries, interest payments now consume 21 percent of tax revenues on average, and in emerging markets, the picture is only marginally better.
As a result, trade-offs have become brutal. Every dollar borrowed without matching revenue means higher taxes or lower spending in the future. But the appetite for public benefits consistently exceeds the willingness to raise revenue. Governments cannot deliver Nordic-level welfare without Nordic-level taxation.
Credibility and flexibility now stand in direct tension. Rigid fiscal rules can deepen recessions. No rules at all invite market rebellions, as seen during the eurozone debt crisis. The middle path requires credible medium-term anchors with escape clauses for rare shocks, transparent plans that protect the vulnerable, and institutional frameworks that build confidence without strangling the government’s ability to respond to severe downturns.
Few countries have found that balance.
Afreximbank’s post-downgrade experience offered a partial blueprint for navigating that middle path. Six weeks after the Fitch episode, the bank raised a $2 billion syndicated loan from 31 lenders, pivoting toward Asian and Middle Eastern banks. Those lenders cared less about Fitch’s opinion and more about the bank’s actual repayment history and shareholder backing.
It is a meaningful precedent, but not yet a systemic solution to dislodge an Africa trapped in a frustrating interregnum. On one hand, the old Western-led financial order is punishing the continent for trying to build autonomous institutions. On the other hand, new alternatives like AfCRA and the BRICS bank are not yet mature enough to carry the full load. And, as always, it is the most vulnerable economies that face slow suffocation.
What Africa needs now is not more declarations or summits. It needs a liquidity bridge that can carry the continent through this period without forcing another lost decade of austerity and social pain. That bridge could come from a coalition of willing lenders: for example, Asian and Middle Eastern banks, development finance institutions from non-Western powers, and perhaps even a real UN-led debt workout mechanism — if the political will materializes.
For now, the ships are still moving around the cape; the bonds are still trading, and the banks are still lending. But the cost of everything is rising, the margin for error is shrinking, and the clock is running.

• Hafed Al-Ghwell is senior fellow and program director at the Stimson Center in Washington and senior fellow at the Center for Conflict and Humanitarian Studies.
X: @HafedAlGhwell