African economies could face a fresh squeeze on government finances and private-sector borrowing as rising energy prices threaten to prolong high interest rates, with the International Monetary Fund urging central banks to resist cutting rates before inflation is under control.

The warning puts pressure on policymakers across the continent, where expensive credit can weaken business investment, slow economic growth and increase the cost of servicing public debt. Countries that rely heavily on external financing are particularly exposed to rising global borrowing costs.

IMF Managing Director Kristalina Georgieva delivered the message on Wednesday at a briefing on the Fund’s Global Policy Agenda during the IMF and World Bank Group Annual Meetings in Bangkok, Thailand. She called for a cautious approach to monetary easing as energy-market disruptions and stronger investment demand create competing pressures on the global economy.

Energy shock complicates the inflation outlook

The IMF expects global economic growth to reach 3.1% in 2026, unchanged from its April projection but below the 3.4% recorded last year.

Georgieva said the outlook was being shaped by two opposing forces: a negative energy supply shock triggered by the war in the Middle East and a positive demand shock associated with artificial intelligence investment.

Higher energy prices risk keeping inflation elevated, while AI-related investment is supporting demand and growth in some economies. The combination complicates decisions for central banks, particularly in countries where inflation remains above target and economic activity is still strong.

“We are urging central banks to stay laser-focused on their price stability mandates,” Georgieva said, arguing that a cautious, hawkish monetary policy bias could be appropriate in many countries.

She stressed that the case for tighter policy was strongest where inflation remained above target and economic activity was high, rather than recommending interest-rate increases across all economies.

Rising global yields increase debt pressure

The cost of borrowing is another concern for African governments already managing substantial debt obligations.

According to Georgieva, bond yields in advanced economies have climbed to multi-decade highs, reflecting persistent inflation, stronger investor demands, expectations of higher future growth linked to AI and concerns about government finances.

Those higher benchmark yields feed into financing costs for emerging markets and low-income countries, even when their risk premiums remain broadly stable.

As a result, governments can face more expensive debt servicing without a corresponding deterioration in their perceived credit risk.

Georgieva said the elevated-yield environment was likely to persist because it reflected underlying economic changes rather than a temporary market fluctuation.

For African countries, more expensive external financing could narrow the room available for infrastructure investment, public services and other spending priorities as governments contend with competing fiscal demands.

IMF urges targeted relief, stronger public finances

The Fund is calling for governments to strengthen their resilience through improved revenue collection, more disciplined spending and better public financial management.

Georgieva also urged authorities to shield vulnerable households from rising food and energy costs without introducing broad subsidies that distort market prices or create additional fiscal pressures.

“As energy and food prices rise, protect people, not prices,” she said, advocating temporary, targeted assistance rather than blanket price controls or subsidies.

The IMF’s position places a premium on balancing inflation control with measures that protect households and preserve fiscal stability.

For African policymakers, the challenge is to prevent renewed price pressures from becoming entrenched while limiting the impact of higher interest rates on public finances, businesses and economic growth.