2026 Perspectives for the Public Sector

The True Cost of Borrowing: Governance and Fundamentals New research provides a critical nuance to the debate on African borrowing costs in international markets. For sovereign Eurobond issuances in the primary market, a modest premium is estimated at approximately 46 basis points under normal conditions. 3 However, this premiumwidens substantially, potentially exceeding 120 basis points, during periods of global stress. Critically, analysis of secondary market sovereign spreads finds no evidence of a statistically significant African premium once structural fundamentals are considered. These key structural factors include the quality of institutions, fiscal transparency, political stability, economic risk, trading liquidity and governance indicators. This implies that African sovereigns can materially reduce external borrowing costs by strengthening the same credibility anchors that underpin domestic market development. Establishing the Sovereign Benchmark Establishing a robust local currency (LCY) bond market remains a critical first step in successful capital market development. 4 In the embryonic phase of market development, the government is typically the predominant issuer. The foundational step is leveraging sovereign issuance to create a credible, visible risk-free yield curve, which subsequently acts as a reference for pricing all other domestic assets, including corporate debt. To achieve this, governments must prioritize: • Predictable Issuance Strategy: Transparency and regularity are paramount. This involves committing to regular reopening of benchmark lines and adhering religiously to a published auction calendar, even when market conditions are unfavorable. This predictability reduces risk for primary dealers and investors, lowering issuance costs and raising liquidity. • Primary Dealer Systems: Active dealers with measurable quoting commitments are essential for market-making and enhancing secondary trading in both sovereign and corporate bonds. • Infrastructure Connectivity: Robust and efficient market infrastructures, especially central securities depositories (CSDs), boost liquidity by making it safer and cheaper to trade and hold securities. Linking domestic CSDs to international CSDs (like Euroclear or Clearstream) greatly facilitates foreign investor access. 3 Alter, A. et al. (2025). Navigating the Evolving Landscape of External Financing in Sub-Saharan Africa 4 Pointek, T. (2025). Fostering Capital Markets and Institutional Investor Development in Oman 56 Deepening Africa’s Domestic Debt Capital Markets: The Cornerstone of Sovereign Resilience