Nigeria and Nine Other Nations Account for 69% of Africa’s External Debt, Says Afreximbank

The Afreximbank report indicates that Nigeria and nine other countries control 69% of Africa’s external debt, with Nigeria contributing 8%. Rising debt levels are linked to insufficient domestic financial markets and high interest rates. The report highlights the ongoing challenges of debt servicing while suggesting strategies for improvement, including fiscal policy reforms and increased investment in key sectors.

According to a report by Afreximbank Research, Nigeria is among ten African nations collectively responsible for 69 percent of the continent’s external debt. Released at the end of February, the report titled ‘African Debt Outlook: A Ray of Optimism’ examines the challenges and opportunities related to debt management across Africa. This figure has increased from 67 percent in 2023, with Nigeria contributing eight percent to this total.

The ten nations principally affecting Africa’s debt include South Africa at 14 percent, Egypt at 13 percent, and Morocco and Mozambique each at six percent. Other significant contributors to this external debt are Angola (five percent), Kenya (four percent), Ghana (four percent), Côte d’Ivoire (three percent), and Senegal (three percent).

Elevated levels of external debt in Africa are attributed to underdeveloped domestic financial markets and high interest rates. The mounting demand for foreign exchange to finance imports has intensified this burden, primarily driven by reliance on aid and concessional loans. Since 2008, external debt in Africa surged, reaching approximately $1.16 trillion in 2023, projected to increase slightly to $1.17 trillion in 2024, with further growth anticipated.

Nigeria’s total public debt reached N142.3 trillion by September 30, 2024, marking a 5.97 percent increase over the previous quarter. In 2024’s first three quarters, Nigeria’s debt servicing exceeded N7 trillion, reflecting increased obligations to multilateral and bilateral creditors along with significant commercial loan interest payments.

The Afreximbank report identifies key contributors to Africa’s increasing debt load, including investments in infrastructure, healthcare, and education, necessitating extensive financing. It also notes that the aggregated debt-to-GDP ratio surged post-2008 Global Financial Crisis, reaching 71.7 percent in 2023, mainly due to rising global interest rates exacerbating debt-servicing difficulties.

Despite these challenges, Nigeria participated in international capital markets through Eurobond issuances, raising $2.2 billion in December 2024. The report anticipates further issuances as central banks lower rates, which could help alleviate immediate fiscal concerns, although macroeconomic conditions remain precarious.

Afreximbank emphasizes the need for targeted policies among African nations to improve debt management. It advocates for robust fiscal measures, strategic engagement with debt relief initiatives, and reforms to the global financial framework. Recommendations include enhancing tax revenue collection through digital means, focused public expenditures, and establishing well-resourced debt management offices.

In summary, while Africa faces ongoing debt challenges, there are signs of medium-term stabilization evident through reducing interest rates and improved access to capital markets. Signs of fiscal sustainability emerge as the region adapts to post-crisis recovery conditions, suggesting an evolving but resilient financial landscape.

In conclusion, Nigeria and nine other African nations hold a substantial portion of Africa’s external debt, prompting a need for careful debt management. The Afreximbank report highlights the challenges faced by these countries, including rising debt levels and servicing costs. However, it also presents opportunities for improvement through policy reforms and strategic investments. Ongoing efforts to stabilize the financial environment may yield positive outcomes in the coming years.

Original Source: economicconfidential.com