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The increasing reliance on domestic borrowing is helping African economies reduce exposure to foreign exchange volatility, but it is simultaneously creating new vulnerabilities within national banking systems, according to Johnson Pandit Asiama, Governor of the Bank of Ghana.
Speaking at the Bank for International Settlements (BIS) Roundtable of African Central Bank Governors, Dr Asiama said Africa’s debt landscape is undergoing a structural shift, with governments increasingly turning to local financing as global borrowing conditions become more restrictive and external capital less predictable.
He noted that what initially emerged as a response to tighter global liquidity is rapidly evolving into a deliberate policy strategy.
“Domestic borrowing is strengthening resilience by reducing external vulnerability, but it is also relocating risk into our own financial systems,” he said.
According to Asiama, several African economies entered 2026 from a stronger macroeconomic position following years of fiscal consolidation and structural reforms. He added that relatively limited exposure to recent tariff pressures, alongside stronger commodity prices—particularly gold—has provided additional support for growth across the continent.
Drawing from Ghana’s experience, the central bank governor said the country has moved beyond crisis management and is now focused on rebuilding long-term fiscal sustainability following the successful completion of debt restructuring under the International Monetary Fund’s Extended Credit Facility programme.
He said Ghana’s macroeconomic indicators have improved significantly, with inflation declining from above 54 per cent in 2022 to 3.7 per cent in May 2026, while the government has returned to a primary fiscal surplus.
Gross international reserves also rose to $14.4bn at the end of May, equivalent to 5.7 months of import cover, reflecting the impact of stronger domestic resource mobilisation and sustained policy reforms.
Asiama explained that Ghana’s debt crisis was largely driven by persistent fiscal deficits, a narrow revenue base, and growing dependence on external commercial borrowing before tighter global financial conditions effectively shut the country out of international capital markets.
In response, the country implemented a combination of debt restructuring, fiscal consolidation, and institutional reforms aimed at restoring debt sustainability and strengthening policy credibility.
Recent activity in Ghana’s Treasury bill market suggests the government continues to maintain access to domestic financing, although investor appetite has moderated from the exceptionally strong demand recorded earlier in the year.
Accepted bids declined to GH¢20.5bn in April, down from GH¢48.5bn in January and GH¢35bn in February, as subscriptions eased and the Treasury adopted a more selective issuance strategy.
Despite the moderation, the government successfully refinanced nearly all its April maturities, rolling over GH¢20.5bn against GH¢21.3bn in maturing bills.
Treasury yields also showed signs of normalisation. The 364-day Treasury bill climbed back into double digits at 10.20 per cent, while the 91-day and 182-day bills closed at 4.92 per cent and 6.97 per cent, respectively.
While increased local currency borrowing reduces exchange-rate mismatches on sovereign balance sheets, Asiama warned that it also concentrates risks within domestic financial institutions, particularly banks with heavy exposure to government securities.
“Instead of currency mismatches, we increasingly face concentration risks within the domestic financial system,” he said. “Where banks hold a significant share of government securities, sovereign stress can quickly become banking-sector stress.”
He further warned that rising volumes of short-term domestic debt could complicate liquidity management, distort interest-rate formation, and weaken monetary policy transmission.
This, he said, underscores the need for stronger coordination between debt management offices and central banks, while preserving the independence of monetary authorities.
Looking ahead, Asiama said the next phase of debt reform should prioritise the development of deeper, longer-dated, and more diversified domestic debt markets supported by a broader investor base.
He stressed that policymakers must ensure today’s financing solutions do not become tomorrow’s systemic vulnerabilities.
The governor also pointed to tighter global financial conditions, persistent geopolitical tensions, and the continued strength of the U.S. dollar as key external risks, despite recent moderation in oil prices.
He concluded that African governments must deepen domestic capital markets without crowding out private sector credit, while carefully managing the growing sovereign-bank nexus before the next external shock emerges.
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