While much international attention remains focused on sovereign defaults and Eurobond restructurings, a quieter fiscal challenge is emerging within the Central African Economic and Monetary Community (CEMAC). As access to international capital markets has become more constrained and borrowing costs have remained elevated, governments across the region have increasingly relied on domestic debt markets to finance budget deficits. In doing so, they are absorbing a growing share of available liquidity, strengthening the financial links between sovereign borrowers and the regional banking system.
Much of this financing has come through short-term Treasury bills and domestic government securities. According to the African Development Bank, tighter global financial conditions and limited access to external funding have increased reliance on domestic borrowing, where commercial banks remain the dominant investors. Because these instruments generally offer relatively attractive returns with limited short-term credit risk, banks have steadily expanded their holdings of sovereign debt. This shift has important consequences for the broader economy. As banks allocate a larger share of their balance sheets to government securities, credit available to businesses becomes more constrained. The African Development Bank identifies this as a "crowding-out" effect, while the International Finance Corporation continues to highlight a substantial financing gap facing small and medium-sized enterprises across Africa. Limited access to credit reduces investment, slows business expansion, and weakens the development of the non-resource private sector that governments ultimately depend on to broaden their tax base.
Growing sovereign exposure has also increased financial sector vulnerabilities. AfDB analysis shows that commercial banks in several African economies now hold an expanding share of their assets in government securities, strengthening the link between public finances and banking sector stability. In the CEMAC region, where fiscal revenues remain heavily dependent on oil exports, prolonged budget pressures or difficulties refinancing public debt could place additional strain on bank liquidity and further restrict private-sector lending.
Regional institutions have repeatedly argued that reducing these risks will require more than fiscal consolidation alone. The African Development Bank and the IMF continue to emphasize stronger domestic revenue mobilization, deeper regional capital markets, and broader sources of long-term financing. Without these reforms, governments are likely to remain heavily dependent on short-term domestic borrowing, increasing pressure on local financial systems while limiting the credit needed for private-sector growth
