According to Afreximbank, Nigeria and nine other countries represent 69% of Africa’s external debt. The report indicates rising debt levels due to underdeveloped domestic markets, high interest rates, and increased demand for foreign exchange. Despite these challenges, stakeholders are encouraged to implement strategic fiscal policies to manage debt sustainably and promote economic growth.
A recent report by Afreximbank reveals that Nigeria and nine other African countries represent 69% of the continent’s external debt, highlighting a concerning trend in financial management. The report, titled ‘African Debt Outlook: A Ray of Optimism’, notes that this percentage has increased from 67% in 2023, indicating rising debt levels among these nations. Nigeria itself accounts for 8% of this total, with South Africa leading at 14%, followed by Egypt at 13%. Other countries included are Morocco, Mozambique, and Angola, among others.
The report identifies key factors driving Africa’s elevated external debt, including underdeveloped domestic financial markets and increasing high-interest rates. Furthermore, demand for foreign exchange to support imports along with dependency on foreign aid and concessional loans has compounded issues, resulting in external debts rising to approximately $1.16 trillion in 2023. Projections suggest this could climb to $1.29 trillion by 2028 due to persistent financing demands stemming from population growth.
As of September 30, 2024, Nigeria’s total public debt hit N142.3 trillion, reflecting a 5.97% increase from the previous June. Debt servicing in the first three quarters of 2024 exceeded N7 trillion, fueled by obligations to multilateral creditors and interest payments. These mounting pressures showcase the urgency for effective debt management strategies across these countries.
The Afreximbank Research underscores that key sectors such as infrastructure, healthcare, and education require significant financing, exacerbating debt accumulation. The debt-to-GDP ratio also surged post-2008, reaching 71.7% in 2023, while rising global interest rates further challenge debt servicing capabilities. Countries have shifted borrowing trends to include non-traditional creditors, complicating repayment landscapes.
In response to these challenges, Nigeria has engaged with international capital markets via Eurobond issuances, including a $2.2 billion issuance in December 2024. The report anticipates more such issuances as central banks lower rates, helping alleviate short-term fiscal worries. However, macroeconomic stability remains fragile, facing risks like currency depreciation.
Afreximbank encourages African nations to implement strategic policies to address the prevailing debt issues effectively. Recommendations include enhancing VAT collection through digital means, prioritizing fiscal measures focused on healthcare and education, and adopting performance-based budgeting. These methods could help streamline public resources, potentially fostering sustainable economic growth.
Despite current obstacles, Afreximbank projects that African debt could stabilize in the medium term due to positive macroeconomic shifts and improved capital access. The outlook suggests that with thoughtful policy execution, there are opportunities for fiscal sustainability and economic recovery across the continent.
In summary, Nigeria and nine other African countries collectively hold a significant portion of the continent’s external debt, reflecting trends of growing financial burdens. Factors such as limited domestic financial capabilities and high global interest rates compound these challenges. However, strategic financial policies and ongoing engagements in international markets offer pathways to improved economic stability and future growth prospects.
Original Source: economicconfidential.com
