From Debt Pressure to AfCFTA: Africa Searches for a New Formula to Finance Growth and Jobs

Sub-Saharan Africa is maintaining reform momentum despite falling aid, record debt pressures and shrinking fiscal space, with stronger economic management but persistent governance weaknesses. Future progress will depend on smarter public spending, stronger institutions, deeper AfCFTA integration and greater private investment to protect jobs, essential services and long-term growth.

Africa's reform drive is entering a difficult phase. The World Bank Group's Office of the Chief Economist for the Africa Region finds that Sub-Saharan African governments improved economic management and several institutional policies in 2025, even as development aid declined and debt repayments consumed a growing share of public revenue. The region's economy expanded by an estimated 4.1 percent in 2025, while median inflation fell from 4.4 percent in 2024 to 3.7 percent. Of the 40 IDA-eligible countries assessed, 27 recorded slower consumer-price inflation. The region's average Country Policy and Institutional Assessment score also moved above the overall IDA average, with 57 individual score increases against 45 decreases.

Less Aid, Bigger Debt Bills Put Development Gains Under Pressure

The biggest challenge is financial. Bilateral net overseas development assistance budgets for Africa fell by 25.8 percent in 2025 and were expected to decline by another 11.6 percent in 2026, according to OECD estimates cited by the World Bank. Donor contributions to multilateral institutions were also estimated to have fallen 21.2 percent between 2023 and 2025.

Meanwhile, Sub-Saharan Africa's general government debt reached a record $1.26 trillion in 2025. Median external debt service rose to 18.2 percent of government revenue, and nearly half of the countries with available data had debt-service-to-revenue ratios above 20 percent.

This has direct development consequences. In nearly four out of five countries, government interest payments exceed public spending on health, education or both. Combined government and donor health expenditure is expected to decline by 2030 in 80 percent of low-income countries and 40 percent of lower-middle-income countries.

Governments therefore face difficult choices between servicing debt, maintaining essential public services and investing in infrastructure. Protecting high-impact health, education and social-protection programmes will become increasingly important as budgets tighten.

Smarter Taxes and Spending Can Create Space Without New Debt

There are encouraging signs that governments are adjusting. Twenty-four of the 40 countries improved their primary fiscal balances between 2024 and 2025, while 10 recorded primary surpluses. Twenty-nine countries increased tax revenue in 2025, raising the GDP-weighted regional tax-to-GDP ratio by about 0.7 percentage points.

Governments are also publishing more debt-management strategies and annual borrowing plans, improving transparency and helping manage refinancing risks. Yet 21 of the 40 countries remain either at high risk of debt distress or already in debt distress.

Reducing inefficient subsidies and tax exemptions could release additional resources. Benin, Côte d'Ivoire, Ghana, Togo and Zambia reduced tax exemptions in 2025. The Democratic Republic of Congo rationalised fuel subsidies and removed mining companies from some fuel subsidies and tax exemptions, generating savings equivalent to around 0.2 percent of GDP.

For policymakers, the challenge is removing expensive, poorly targeted incentives without hurting vulnerable households or productive businesses. Better-targeted social assistance and regular evaluation of tax incentives can help manage that trade-off.

Cutting Border Costs Could Turn AfCFTA Into an Investment Engine

Private investment will become more important as governments lose access to cheap financing. But businesses still face shallow financial markets, weak infrastructure, regulatory uncertainty and widespread informality.

The African Continental Free Trade Area could help create larger markets for manufacturing, processed food and services. However, non-tariff barriers, including inefficient customs procedures, physical inspections, export restrictions and poor logistics can impose costs estimated at 130–260 percent of the value of goods.

Some reforms are already delivering measurable improvements. Togo reduced checkpoints along the Lomé-Cinkassé corridor from 20 to four. Zambia cut physical inspection rates from nearly 100 percent to around 50 percent. Rwanda's Kigali Logistics Platform reduced truck turnaround times from 10–14 days to three days, while Kenya shortened the average time required to resolve reported trade barriers from 242 to 123 days.

These improvements create opportunities for logistics companies, financial institutions, digital-payment providers, manufacturers and regional supply chains. But unreliable courts, inconsistent regulation and weak competition policies remain risks for investors.

Africa's Next Reform Test Is Building Institutions That Actually Work

Governance remains the region's most persistent weakness. Governments have introduced anti-corruption strategies, procurement reforms, asset-declaration systems and transparency requirements, but enforcement often remains weaker than legislation. Property rights, courts, transparency and accountability continue to lag behind Africa's stronger performance in economic management and human development.

Digitalisation offers a relatively affordable way to improve government capacity. Electronic systems for tax payments, customs, business registration and permits can reduce administrative costs, improve transparency and make services accessible beyond major cities. Governments will, however, need stronger cybersecurity, data protection and digital oversight.

International development partners also face a changing role. With less concessional financing available, support can increasingly focus on strengthening tax administration, debt management, social registries, public financial management, regulatory institutions and digital government while using limited funding to mobilise additional private investment.

The broader message is that Africa will increasingly have to generate more development from every available dollar. Governments need to preserve macroeconomic stability, protect essential social spending, strengthen debt transparency, remove unnecessary trade barriers, improve courts and regulation and make AfCFTA work in practice. For businesses, stronger regional integration offers new markets, but predictable rules and credible institutions will determine how much private capital follows. For development partners, helping governments build those institutions could become as important as the amount of financing they provide.