Afreximbank’s report highlights that Nigeria and nine other countries account for 69% of Africa’s external debt, reflecting a rise from 67% in 2023. Nigeria’s public debt has reached N142.3 trillion, fueled by significant servicing costs. Despite challenges, the report offers recommendations for fiscal improvements to enhance debt sustainability amid rising interest rates and growing financial needs across the continent.
According to a report from Afreximbank Research, Nigeria is among ten African nations contributing to 69 percent of the continent’s external debt. This report, titled ‘African Debt Outlook: A Ray of Optimism’, released in late February, reveals that this percentage has increased from 67 percent in the previous year, with Nigeria alone accounting for eight percent of this debt. Other significant contributors include South Africa, Egypt, and Morocco, among others.
The report highlights the factors driving Africa’s escalating external debt, which has reached approximately $1.16 trillion, representing 60 percent of total public debt by 2023. A slight uptick to $1.17 trillion is expected in 2024, with projections estimating a rise to $1.29 trillion by 2028 due to increasing financing needs and population growth pressures.
Nigeria’s public debt has surged, reaching N142.3 trillion by September 30, 2024, which is a 5.97 percent increase from the previous June. In the first three quarters of 2024, debt servicing costs exceeded N7 trillion, driven by obligations towards multilateral and bilateral creditors, alongside significant interest payments on commercial loans.
The Afreximbank report outlines broader challenges contributing to Africa’s debt issues, such as the necessity for infrastructure, healthcare, and education funding, which often require loans for financing. It noted that the debt-to-GDP ratio increased significantly since 2008, exacerbated by elevated global interest rates which pose significant challenges to debt servicing, particularly from non-traditional creditors.
Despite these hurdles, Nigeria successfully accessed international capital markets, issuing a $2.2 billion Eurobond in December 2024. The report anticipates further issuances as central banks lower rates, which may alleviate immediate fiscal concerns, although significant risks including currency depreciation remain.
Afreximbank recommends actionable policies for Nigeria and other African nations to navigate their complex debt environment. Key suggestions include enhancing tax revenue through improved value-added tax collection, prioritizing expenditures towards impactful sectors, and adopting performance-based budgeting to ensure efficient resource allocation.
The recommendations stress the importance of establishing strong Debt Management Offices (DMOs) to continuously monitor debt sustainability. Afreximbank concludes that while challenges exist, African debt shows signs of stabilization in the medium term, supported by reduced interest rates and improved capital market access, indicating a potential for positive fiscal sustainability.
The Afreximbank report elucidates that Nigeria, along with nine other African nations, represents a significant portion of the continent’s external debt, currently amounting to 69 percent. Challenges remain with rising debt levels due to various factors, including infrastructure needs and high interest rates. Afreximbank emphasizes actionable policy recommendations to strengthen fiscal measures, thereby enhancing fiscal sustainability moving forward. Factors such as improved tax collection and strategic expenditures will be crucial for managing Africa’s debt landscape effectively.
Original Source: economicconfidential.com
