East Africa to anchor regional growth momentum

EAST AFRICA: EAST African economies are expected to remain the primary engines of regional growth, supported by resilient domestic demand, continued infrastructure investment and improving performance in agriculture and services.

While key markets will continue to contribute significantly to regional expansion, their relative share is expected to decline modestly from 2025 as growth momentum broadens across other sub-regions. Based on 2024–2025 performance, real GDP growth across the region is projected to accelerate to 4.2 per cent in 2026, up from 3.9 per cent in 2025 the fastest pace in over a decade.

This reflects strengthening macroeconomic fundamentals, rising investment inflows and a sustained recovery in domestic demand, supported by improved fiscal discipline, easing inflation and a more stable external environment.

Country-level data from central banks suggest domestic demand will remain resilient despite global trade uncertainty. Growth will be driven mainly by private consumption, as accommodative monetary conditions support real wages and credit demand.

Credit transmission is expected to strengthen further as policy rates decline and inflation moderates, while stable exchange rates and lower global energy prices ease import-cost pressures. Limited export exposure to the United States means economies such as Tanzania, Kenya and Uganda are unlikely to face significant direct impacts from potential US tariff actions.

On the fiscal side, governments are increasingly turning to innovative financing as nominal funding needs rise to 82.5 billion US dollars in 2026 the highest since 2021 even as fiscal consolidation resumes and the aggregate deficit narrows from 3.8 per cent to 3.6 per cent of GDP.

Limited scope for additional IMF support, saturated domestic capital markets and persistently high Eurobond yields are accelerating the shift toward alternative instruments, including Sukuk, sustainability-linked and ESG bonds, non-USD debt, infrastructure and diaspora bonds and syndicated loans.

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Externally, China’s engagement with Sub-Saharan Africa is expected to remain strong. Rising US protectionism has boosted Africa’s attractiveness as an export market, with Chinese exports to the continent up 20.4 per cent since March 2025.

China’s June 2025 decision to remove tariffs for African countries with diplomatic ties should support African exports, but is likely to widen trade imbalances as exports remain concentrated in raw materials. By contrast, US–Africa relations are set to become more transactional in 2026, favouring countries with energy and critical mineral assets.

Multilateral programmes such as USAID and AGOA are likely to be deprioritised, with only a short-term AGOA extension expected in mid-2026, weakening market-access leverage for resource-poor economies.

Africa’s foreign exchange outlook is expected to soften as commodity prices peak (excluding copper) and stronger domestic demand lifts imports. Exchange-rate pressures should rise but remain contained, supported by a softer US dollar amid Federal Reserve rate cuts.

Political risks are also expected to intensify in 2026, with insecurity, social tensions and elections pushing political risk higher; only eight of 49 African countries are projected to outperform the global average on our Political Risk Index.

I am of the view that with Gen-Z perspectives as an agenda for many nations, security risks will remain high in most African countries, especially in sub-Saharan Africa, particularly in West Africa, where military-run Sahelian governments struggle against Islamist insurgents and spillover risks into coastal states are rising.

Likewise, social stability risks will persist due to declining democratic space, elections in vulnerable markets, potential ‘Gen-Z’ protests and fiscal consolidation efforts.

In conclusion, 2026 and beyond are set to be economically consequential years for the region. While aggregate fiscal consolidation will resume, GDP-weighted budget deficits are projected to narrow only modestly from 3.8 per cent of GDP in 2025 to 3.6 per cent in 2026 reflecting persistent spending pressures.

At the same time, nominal financing needs are expected to rise to 82.5 billion US dollars the highest level since 2021. This increase will occur amid a shifting global financial architecture, as BRICS economies accelerate efforts to reduce dollar dependence through gold accumulation and alternative settlement systems.

Against this backdrop, governments in the region will continue to rely primarily on concessional financing, domestic securities and Eurobond issuance, supplemented to a limited extent by non-traditional tools, including central bank financing.

However, scope for additional IMF support is increasingly constrained, with quota utilisation near historical highs, while domestic capital markets show signs of saturation, raising yields and crowding out private credit.

Despite tightening global conditions, Eurobond issuance is likely to persist, albeit at elevated coupons, locking in higher debt service costs. As a result, 2026 is likely to mark a broader shift toward less conventional financing instruments, including Sukuk in Islamic markets, sustainability-linked and ESG bonds, infrastructure and diaspora bonds and more complex syndicated loans.

To mitigate foreign exchange risk, greater use of non-USD currencies and liability management operations is also expected. Overall, the financing landscape in 2026 will be defined by higher costs, tighter constraints and greater.