Afreximbank’s report reveals that Nigeria and nine other countries hold 69% of Africa’s external debt. Nigeria’s share is 8%, with rising debt attributed to underdeveloped financial markets and high interest rates. The report details increasing debt levels and recommends strategic fiscal reforms to improve debt sustainability and economic stability across the continent.
According to a report by Afreximbank Research, Nigeria is among ten African nations that collectively hold 69% of the continent’s external debt. Released in February, the report, titled ‘African Debt Outlook: A Ray of Optimism,’ outlines the persistent challenges and potential strategies for African countries managing significant debt levels.
By the first half of 2024, this group of nations increased its share of external debt from 67% in 2023. Notably, Nigeria accounts for 8% of the total debt, whereas South Africa holds 14%, Egypt 13%, and Morocco and Mozambique each 6%. Other countries like Angola, Kenya, Ghana, Côte d’Ivoire, and Senegal also contribute to the debt stock.
The Afreximbank report attributes the high levels of external debt to underdeveloped domestic financial markets, elevated interest rates, and a growing demand for foreign currency. This demand is primarily driven by import financing needs and reliance on foreign aid and concessional loans, which have intensified over the years.
Since 2008, Africa’s external debt escalated to approximately $1.16 trillion, constituting 60% of public debt in the region by 2023. The figure is projected to rise slightly to $1.17 trillion in 2024, with a possibility of reaching $1.29 trillion by 2028, fueled by increasing financing needs amid population growth.
As of September 30, 2024, Nigeria’s public debt stood at N142.3 trillion, which marks a 5.97% increase from June 2024. Debt servicing obligations have exceeded N7 trillion, driven by higher payments to multilateral and bilateral lenders and significant commercial loan interests.
The Afreximbank report highlights broader contributors to Africa’s increasing debt, such as infrastructure, healthcare, and education expenditures. Following the 2008 global financial crisis, the aggregated debt-to-GDP ratio surged, reaching 71.7% by 2023, complicated by higher global interest rates and extensive borrowing from non-traditional creditors.
Despite these difficulties, Nigeria successfully issued a $2.2 billion Eurobond in December 2024 to tap international capital markets. The report anticipates continued issuances as central banks lower interest rates, allowing some immediate fiscal relief while noting the persistence of macroeconomic instability, currency depreciation risks, and low foreign reserves.
To address these challenges, Afreximbank emphasizes the importance of targeted, strategic policies. Recommendations include strengthening the VAT, utilizing digital tax mechanisms, reevaluating public expenditure towards crucial sectors, and implementing performance-based budgeting to allocate resources effectively. Moreover, robust Debt Management Offices (DMOs) are essential for real-time monitoring of debt sustainability and risk assessment.
Afreximbank concludes that, moving into the medium term, African debt exhibits stabilization signs encouraged by favorable macroeconomic conditions, decreasing interest rates, and improved capital market access. Still, it acknowledges challenges while recognizing positive fiscal sustainability signals in the region’s post-crisis recovery efforts.
The Afreximbank Research report underscores the significant external debt burden faced by Nigeria and other African nations, accounting for a substantial part of the continent’s debt. While external debt levels have risen, there are opportunities for stabilization through strategic fiscal policies and market engagement. Addressing these challenges effectively could enhance financial sustainability amidst ongoing economic pressures.
Original Source: economicconfidential.com
