2026 Perspectives for the Public Sector

Attracting Complementary Portfolio Flows Attracting non-resident portfolio flows into LCY instruments serves a critical complementary purpose, offering demonstrable yield benefits and immediate stabilization. Studies confirm that higher non-resident ownership is associated with lower yields. This effect is pronounced in Sub-Saharan Africa (SSA), where a 10 percentage point increase in non-resident holdings correlates with yield reductions of approximately 0.4 percentage points. 7 Crucially, while global participation often increases yield volatility, SSA exhibits a unique pattern where higher non-resident ownership correlates with reduced volatility. This makes non- resident capital a highly effective tool for injecting liquidity, lengthening the yield curve and diversifying the investor base away from the domestic bank-sovereign nexus. This complementary function is actively supported by Citi. We are at the forefront of facilitating active portfolio investor engagement with the continent, traveling with several investor groups over the course of the year to various African markets and curating candid feedback sessions between issuer and portfolio investor. Mobilizing Domestic Long-Term Capital Africa holds substantial domestic capital pools, estimated at USD 1.1 trillion in institutional assets , 5 that represent patient, long-duration money necessary to finance structural transformation and investment gaps. However, this capital is often underutilized or concentrated. • Addressing the Bank-Sovereign Nexus: Currently, domestic banks dominate the debt investor base in many SSA countries, holding approximately 60% of outstanding government securities . This bank dominance can intensify the bank-sovereign nexus , creating systemic risks and potentially crowding out private sector borrowers. 6 • Unlocking Institutional Investors: Deepening the domestic institutional investor base, particularly pension funds and insurance companies, is critical as they seek to match long-term domestic currency liabilities. Policy reforms must aim to alleviate restrictive portfolio allocation rules that currently lead to an over-concentration in short-dated government paper and encourage investing in productive assets. Another critical enabler is the upskilling of Trustees boards that oversee the activities of institutional investors to facilitate new product adoption and setting of strong performance criteria for fund managers. Increased pension fund penetration dampens volatility and supports longer- term, sustained economic growth. • Risk Mitigation via MDB/DFI Catalysis: MDBs and DFIs utilize risk defeasance tools to mobilize private capital and demonstrate viability in emerging markets (EMDEs). DFI- backed transactions perform significantly better than non- DFI-backed transactions. GEMS Data shows DFI-enabled loans in emerging markets achieve an average recovery rate of 74.7% , which is substantially higher than emerging market bonds recovery rate 38%. Such credit enhancement structures can be transformative for local-currency markets. In July 2025, Sun King closed a $156 million (Kenyan Shilling equivalent) securitization, backed by Citi, to finance approximately 1.4 million solar products and smartphones in Kenya. A mezzanine tranche was provided by DFI, including BII, FMO, Norfund and the Norwegian Investment Fund. In July 2024, Citi and IFC announced a $65 million (Kenyan Shillings equivalent) loan to IFC for on-lending to a digital infrastructure project in Kenya. 5 Africa Finance Corporation. (2025). State of Africa’s Infrastructure Report 2025 6 Alter, A. et al. (2025). Navigating the Evolving Landscape of External Financing in Sub-Saharan Africa 7 Alter, A. et al. (2025). Navigating the Evolving Landscape of External Financing in Sub-Saharan Africa The advancement of regional economic blocs is a key strategic pathway for mitigating the constraint of small domestic market size, and the maturation of the West African Economic and Monetary Union (WAEMU) is pivotal to this effort, given its position as one of the world’s fastest-growing economic zones . Citi Perspectives for the Public Sector 57