African governments and companies with dollar-denominated debt face renewed pressure from a strengthening U.S. currency and the prospect of higher global interest rates for longer, exposing structural weaknesses in the international financial system that economists say continue to disadvantage developing economies.
A July report by Afreximbank warns that expectations for aggressive interest-rate cuts by major central banks in 2026 are becoming increasingly unrealistic as global growth remains resilient and inflationary pressures persist. The report says African sovereigns and corporations with U.S.-dollar liabilities could face renewed foreign-exchange pressures as the dollar index rebounds and global financing conditions tighten.
The lender cautioned that the relatively benign currency environment seen in the first half of 2026 may be fading. Combined with International Monetary Fund (IMF) projections that global inflation will rise to 4.7% this year, tighter monetary conditions could increase refinancing risks across the continent.
More than 60% of African countries remain moderately to highly exposed to net oil and gas imports, leaving them particularly vulnerable to currency depreciation, rising energy costs and external shocks. Higher fuel prices widen current-account deficits, weaken exchange rates and increase fiscal pressures through larger import bills and energy subsidies, according to the report.
About half of African economies already face substantial external financing constraints, with gross financing requirements exceeding 10% of GDP, while many countries hold foreign-exchange reserves worth less than three months of imports. Limited reserves reduce governments’ ability to stabilize currencies and service foreign debt during periods of market turbulence.
For economist Annina Kaltenbrunner, these vulnerabilities reflect a deeper problem embedded in the global financial architecture.
“The concept of international financial subordination emerged from observing structural asymmetries in the international economy that disadvantage and penalize developing countries more than developed ones,” Kaltenbrunner, a professor of global economics at Leeds University Business School, said in an interview published in the OPEC Fund Quarterly.
According to Kaltenbrunner, developing countries remain dependent on dollar- and euro-denominated borrowing because international capital markets offer limited alternatives. That dependence leaves them exposed to exchange-rate swings and abrupt shifts in investor sentiment that wealthier nations rarely experience.
“Currently, these structures are perpetuated because most capital going into developing countries is denominated in U.S. dollars or euros, which shifts the currency risk to the borrower,” she said. “As soon as the local currency depreciates, the debt burden increases.”
The Afreximbank report echoes those concerns, warning that a prolonged period of restrictive monetary policy in the United States could strengthen the dollar and sustain elevated financing costs worldwide. The bank said investors may be overestimating the likelihood of rapid interest-rate cuts from the Federal Reserve, given resilient labor markets and persistent inflation risks.
“Should economic growth continue to outperform expectations and labour market conditions remain resilient, the Federal Reserve may choose to maintain policy rates at relatively restrictive levels for longer than markets currently anticipate,” the report said.
Kaltenbrunner argues that the impact extends far beyond sovereign balance sheets, filtering through entire economies and raising borrowing costs for businesses and households.
Pointing to Uganda, she noted that although the central bank’s policy rate stands at about 10%, commercial lending rates exceed 22% because policymakers must maintain relatively high interest rates to attract foreign capital and support the currency.
“The macro environment feeds directly into the micro: systemic risk translates into high borrowing costs across the economy,” she said.
The economist said climate financing presents another challenge for developing countries, many of which face significant adaptation costs while lacking the fiscal space to fund them. Private investors alone are unlikely to bridge the gap because many climate projects do not generate returns high enough to attract commercial capital.
“We need to rethink catch-up development finance and how best to mobilize funding,” Kaltenbrunner said.
She called on multilateral development banks to expand lending in local currencies and absorb part of the exchange-rate risk, arguing that doing so could lower borrowing costs, reduce default risks and encourage domestic investment.
Regional integration could also help reduce dependence on foreign currencies, Kaltenbrunner said, pointing to efforts in Africa to develop local-currency payment systems and reserve mechanisms. Her argument aligns with Afreximbank’s call for African economies to deepen domestic capital markets, strengthen foreign-exchange buffers and accelerate structural reforms to withstand future shocks.
As global financial conditions tighten and geopolitical uncertainty persists, countries with stronger fiscal positions, larger reserve buffers and more diversified sources of financing will be better positioned to preserve economic stability and investor confidence, according to Afreximbank.
