The International Monetary Fund (IMF) has flagged increasing debt risks for banks as governments across Sub-Saharan Africa turn to domestic borrowing.

In its report, “Sub-Saharan Africa: Steady Growth Amid Fiscal Challenges,” IMF African Department Director Abebe Selassie highlighted that rising government debt in banks’ portfolios could heighten financial vulnerability.

Selassie urged governments, including Nigeria, to prioritize social protection programs for vulnerable populations and to direct savings from petrol subsidy removals toward healthcare and education. “Now is not the time for spending cuts in these areas,” he said, noting that well-targeted expenditure is vital for sustaining growth and improving social outcomes.

Inflation, while easing in the region, remains above 10% in about one-fifth of African economies. Despite some countries rebuilding international reserves, fiscal pressures persist across much of the continent.

The IMF recommends two broad policy priorities:

1. Raising More Revenue – With external financing scarce and debt burdens high, mobilizing domestic revenues and improving debt management are critical for creating fiscal space, lowering borrowing costs, and widening access to funds.
2. Boosting Tax Collection – Successful reform requires attention to both tax policy (what to tax) and administration (how to collect). Countries like Ghana, Rwanda, and Tanzania have made progress through digitized tax systems, pilot reforms, and citizen engagement, while poorly designed levies can fail without public support.

Selassie emphasized that tax compliance improves when citizens see public money used effectively. Governments should pair revenue reforms with visible service delivery, tighter spending controls, anti-corruption measures, and accountability initiatives to sustain gains.

Debt Management and Innovative Financing
Transparent and credible debt management institutions can reduce borrowing costs and attract investors. Publishing comprehensive debt data, engaging openly with creditors, and strengthening oversight are essential steps.

Selassie also highlighted innovative financing tools, such as blended finance, which combines concessional and private funds to support green energy, health, and infrastructure. Debt-for-development swaps—agreements replacing sovereign debt with commitments to fund social or environmental programs—have been successfully tested in countries like Côte d’Ivoire.

“Governments need credible regulation, transparent data, and streamlined procedures to scale such initiatives,” he said. “Used correctly, these tools can lay the foundation for more resilient and inclusive growth across the region.”