Lucky Obukohwo, Reporting
A financial institute, Afreximbank has raised the concern over the debt profile of Nigeria as the research it carried out has shown that Nigeria is among the 10 African nations that collectively account for 69 percent of the continent’s total external debt.
The report, titled “African Debt Outlook: A Ray of Optimism,” which was released in late February and highlights both the challenges and opportunities in Africa’s debt landscape, noted that in the first half of 2024, 10 countries held the majority of the continent’s external debt stock, up from 67 per cent in 2023.
Nigeria alone accounts for eight per cent of Africa’s total external debt, ranking among the highest borrowers alongside South Africa (14 per cent), Egypt (13 per cent), Morocco (six per cent), Mozambique (six per cent), Angola (five per cent), Kenya (four per cent), Ghana (four per cent), Côte d’Ivoire (three per cent), and Senegal (three per cent).
The report attributes Africa’s high external debt levels to factors such as underdeveloped domestic financial markets, high global interest rates, and increased demand for foreign exchange to finance imports. It also highlights the reliance on aid, concessional loans, and competitive credit offers from private lenders as key contributors to rising debt.
“Africa’s external debt levels remain elevated, primarily due to the limited development of domestic financial markets and high interest rates. The growing demand for foreign exchange to finance imports has further exacerbated external indebtedness, fuelled by reliance on aid, concessional loans from multilateral institutions, and competitive rates offered by private creditors,” the report said.
Beyond highlighting the debt burden, the Afreximbank report also listed the broader factors contributing to Africa’s rising debt, including the need for infrastructure investment, healthcare expansion, and education funding, stating that these developmental needs have led governments to seek extensive financing through loans.
The report also noted that Africa’s aggregated debt-to-GDP ratio increased by 39.3 percentage points after the 2008 global financial crisis, reaching 71.7 per cent in 2023.
With elevated global interest rates, debt servicing has become more complex, especially as many African nations borrow from non-traditional lenders, including private sector creditors and emerging bilateral partners.
To mitigate the risks, the report offers strategic recommendations for Nigeria and other African nations. “Africa is navigating a complex debt environment, but the tide can be turned through targeted, actionable policies. Policymakers must prioritise robust fiscal measures, engage strategically with debt relief initiatives, promote long-term growth, and advocate reforms to the global financial architecture,” the report advised.
It further recommended: strengthening value-added tax (VAT) collection and leveraging digital tax systems to increase revenue; redirecting public expenditure towards high-impact sectors such as healthcare, education, and infrastructure; adopting performance-based budgeting to ensure efficient resource allocation; and establishing well-resourced debt management offices (DMOs) to monitor debt sustainability and enhance risk assessment.
Despite the growing debt concerns, Afreximbank noted that Africa’s debt outlook shows signs of stabilisation in the medium term. Factors such as macroeconomic improvements, declining global interest rates, and better access to capital markets are expected to ease fiscal pressures.
While risks remain, the report suggests that the region is making strides towards fiscal sustainability as it navigates post-crisis economic recovery.