Nigeria, alongside nine other African countries, accounts for 69% of the continent’s external debt, as reported by Afreximbank. The report highlights rising debt levels spurred by underdeveloped financial markets and high demand for foreign currency. Meanwhile, Nigeria’s public debt has reached N142.3 trillion, with increased debt servicing costs noted. Recommendations for improvement include adopting stronger fiscal measures and strategic debt management policies.
According to a recent report by Afreximbank Research, Nigeria and nine other African nations collectively represent 69% of the continent’s external debt. This data is outlined in the report titled ‘African Debt Outlook: A Ray of Optimism’, released in late February. It emphasizes both the challenges and opportunities African nations encounter in managing their debt effectively.
In the first half of 2024, the share of total external debt stock held by these ten nations rose from 67% in 2023 to 69%. Nigeria is responsible for 8% of this debt, while other countries include South Africa (14%), Egypt (13%), Morocco (6%), Mozambique (6%), Angola (5%), Kenya (4%), Ghana (4%), Côte d’Ivoire (3%), and Senegal (3%).
The report identifies that Africa’s external debt levels are high, due in part to the underdevelopment of domestic financial markets and elevated interest rates. The demand for foreign currency to finance imports has worsened external debt levels, compounded by reliance on aid and loans from multilateral institutions as well as attractive rates from private creditors.
Since 2008, external debt for African countries has surged to approximately $1.16 trillion, constituting 60% of the region’s total public debt in 2023. Projections suggest this will increase to about $1.17 trillion in 2024, potentially reaching $1.29 trillion by 2028 due to rising financing needs driven by population growth.
As reported by the Debt Management Office (DMO), Nigeria’s total public debt stood at N142.3 trillion as of September 30, 2024, reflecting a 5.97% increase from N134.3 trillion in June 2024. Over the first three quarters of 2024, the nation incurred over N7 trillion in debt servicing costs, primarily due to obligations to multilateral and bilateral creditors and substantial interest payments on commercial loans.
Moreover, the Afreximbank Research report elaborates on the broader issues contributing to Africa’s rising debt burden, including the costs of infrastructure, healthcare, and education, which necessitate extensive financing through loans. The aggregated debt-to-GDP ratio surged by 39.3 percentage points post-2008, reaching 71.7% of GDP in 2023.
The increase in global interest rates has complicated the situation further, intensifying debt servicing challenges, particularly with significant borrowing from non-traditional creditors. Notably, Nigeria has engaged in international capital markets, issuing a $2.2 billion Eurobond in December 2024, with expectations of further issuances as central banks reduce rates, though macroeconomic stability remains precarious.
Afreximbank recommends actionable policies for Nigeria and other African countries to navigate their debt circumstances. These include enhancing fiscal measures, actively engaging in debt relief strategies, promoting economic growth, and advocating for reforms in the global financial system. Specific, targeted recommendations include strengthening tax collection and redistributing public spending towards impactful sectors.
“Africa is navigating a complex debt environment, but the tide can be turned through targeted, actionable policies,” states Afreximbank. The institution emphasizes the need for well-resourced debt management offices to monitor debt sustainability continuously.
Afreximbank concludes that signs of stabilizing African debt are evident in the medium term, attributed to macroeconomic improvements, reduced interest rates, and enhanced access to capital markets. Although challenges persist, the continent shows promising fiscal sustainability indicators as it recovers from recent crises.
In summary, Nigeria and nine other nations constitute a significant portion of Africa’s external debt, reaching 69% in early 2024. The Afreximbank report highlights the urgent need for robust fiscal policies and strategies to manage this increasing debt burden. Despite persistent challenges, there are indications of potential stabilization in Africa’s debt situation, promoting hopeful prospects for economic recovery.
Original Source: economicconfidential.com
