Senegal, Mozambique, and Malawi could face sovereign debt defaults within the next two years as governments grapple with fiscal strain from the Iran-driven oil price shock.
Business Insider Africa previously reported that the ongoing Iran conflict is pushing up borrowing costs for African nations, compounding debt pressures that have intensified since the COVID-19 pandemic and further constraining the continent’s economic recovery.
Since 2020, Africa’s 54 economies have recorded four sovereign defaults: Ghana, Zambia, Ethiopia, and Chad, all of which underwent debt restructuring under the G20 framework. These crises were driven by a combination of heavy debt burdens, weak fiscal management, and external shocks ranging from the COVID-19 pandemic to Russia’s invasion of Ukraine.
“Africa is still not entirely out of the woods yet in terms of debt defaults,” Citi’s Chief Africa Economist, David Cowan, told Reuters.
Immediate risks for Mozambique and Malawi
Senegal, which has been working to navigate a hidden debt crisis uncovered in late 2024, remains in what Cowan described as “a pretty big mess,” raising the risk of a potential default by 2027 despite managing to stay afloat this year.
Mozambique and Malawi face more immediate risks. Both countries could default as early as this year, driven by sharp currency depreciation that is increasing the cost of servicing foreign-denominated debt and pushing obligations toward unsustainable levels.
However, Cowan noted that any defaults in these countries may be resolved relatively quickly. Malawi’s debt is largely owed to multilateral and bilateral lenders such as the World Bank, while Mozambique has only one outstanding hard-currency bond, simplifying potential restructuring processes.
Despite these risks, Cowan said Africa is weathering the current Iran war-linked shock better than previous crises in terms of international borrowing costs. He pointed to the Democratic Republic of the Congo’s successful debut Eurobond issuance as a sign of continued investor appetite.
Meanwhile, Kenya may allow its currency to weaken further as a buffer against rising crude oil prices, using exchange rate flexibility to absorb external pressure.