Rising tensions linked to the Iran conflict are driving up borrowing costs for African countries, worsening debt challenges that have persisted since the COVID-19 pandemic and slowing the continent’s economic recovery.
According to new findings published on Tuesday, April 14, by ONE Data, interest rates on loans from the World Bank’s International Bank for Reconstruction and Development jumped significantly to 5.2% in 2024, compared to 1.4% in 2020.
Lending from China to African nations has also become more expensive, rising to 5.7% from 2.5% during the same period, as global financial conditions tightened due to central banks increasing rates to control inflation.
The report noted that while it is still too soon to determine the full long-term effects of the Iran war, early warning signs are already visible. Many African economies, already burdened by high debt accumulated during the pandemic, are now at risk of facing another major external shock.
“Now, with the Iran war threatening to increase energy and food prices significantly, the space countries’ ability to weather this crisis is severely limited,” said David McNair.
Data from the study shows that the average borrowing cost for African countries rose by 91% between 2020 and 2024, putting greater pressure on national budgets and limiting spending on social services and infrastructure projects.
Despite some easing in global markets due to renewed diplomatic signals between the United States and Iran, financial conditions remain challenging. Africa’s sovereign bond spreads over US Treasuries, which reached 405 basis points in late March, have only slightly declined to 352 basis points, based on data from JPMorgan.
Short-term improvements in investor sentiment enabled countries like the Democratic Republic of Congo to raise $1.25 billion through a eurobond in April, while oil-producing Angola also returned to international markets in March.
Nevertheless, experts caution that shrinking Western aid, rising fuel prices, and slower global economic growth could further weaken fiscal stability across Africa.
“With higher borrowing costs, countries do not just lose access to capital, they lose the ability to invest in their future,” said William Asiko.