Nigeria is one of the 10 African countries that together account for 69 percent of the continent’s total external debt, the Africa Export and Import Bank (Afreximbank) has asserted.
In its latest report titled ‘African Debt Outlook: A Ray of Optimism’, Afreximbank said the continent’s external debt levels remained elevated, primarily due to the limited development of domestic financial markets and high interest rates.
The bank further highlighted the challenges and opportunities facing African nations in managing their debt.
Read the repor: “In the first half of 2024, ten African nations constituted 69 percent of the continent’s total external debt stock, up from 67 percent in 2023.
“The countries leading this metric are South Africa (14 percent), Egypt (13 percent), Nigeria (8 percent), Morocco (6 percent), Mozambique (6 percent), Angola (5 percent), Kenya (4 percent), Ghana (4 percent), Côte d’Ivoire (3 percent), and Senegal (3 percent).
“The growing demand for foreign exchange to finance imports has further exacerbated external indebtedness, fueled by reliance on aid, concessional loans from multilateral institutions, and competitive rates offered by private creditors.
“Since 2008, the external debt of African countries has escalated significantly, reaching approximately US$ 1.16 trillion and representing 60 percent of the region’s total public debt stock as of 2023. Projections indicate a slight increase to US$ 1.17 trillion in 2024, with sustained growth anticipated, potentially reaching US$ 1.29 trillion by 2028.
“This trend is driven by the continent’s increasing financing requirements, largely due to population growth pressures”.
Afreximbank said that most of Africa’s debt was long-term, which accounted for 75 percent, while short-term debt accounted for 15.9 percent.
Said the bank: “The continent’s increasing need for financing, especially infrastructure development, requires long-term debt. Between 2008 and 2023, long-term debt increased compared to short-term debt.
“In 2023, long-term debt accounted for 75.0 percent of the continent’s total debt, while short-term and IMF debt comprised 15.9 percent and 8.9 percent, respectively. Projections show that from 2024 to 2028, long-term debt will remain the dominant form of debt, making up 75.7 percent, 75.9 percent, 76.2 percent, 76.4 percent, and 76.4 percent of the total debt, respectively”.
Providing recommendations to reduce external debt, Afreximbank said resource-dependent countries should prioritise economic diversification to reduce vulnerability to commodity price shocks.
Said Afreximbank: “For example, Nigeria should invest in agriculture and manufacturing, while Angola should develop its renewable energy sector.
“Countries should adopt sustainable borrowing practices, avoiding excessive reliance on commercial debt. They should also strengthen debt management institutions to improve transparency and accountability.
“Governments should establish robust social safety nets to protect vulnerable populations during external shocks. For instance, Kenya’s cash transfer programmes during the pandemic helped mitigate the impact of rising food prices”.
The report further said African debt exhibits signs of stabilisation in the medium term, “driven by macroeconomic tailwinds, reduced interest rates, and improved access to capital markets”.
Added the bank: “While challenges remain, the region displays positive fiscal sustainability indicators as it navigates the post-crisis recovery landscape”.
To sustain the momentum, Afreximbank urged African countries to systematically reduce fiscal deficits, prioritise efficient public expenditures, enhance tax revenue collection, and bolster transparency in debt management practices.
