Nigeria, along with nine other African countries, comprises 69% of Africa’s external debt, according to Afreximbank. Africa’s external debt has increased significantly, with Nigeria’s public debt reaching N142.3 trillion. The report emphasizes the need for critical policy reforms to manage the rising debt levels and enhance fiscal sustainability amidst ongoing challenges and risks.
According to a recent report by Afreximbank, Nigeria is among ten African nations that together account for 69% of the continent’s external debt. This percentage has grown from 67% in 2023. Nigeria itself represents 8% of this total debt, with South Africa (14%), Egypt (13%), and Morocco (6%) also notable contributors.
The report, part of the ‘African Debt Outlook: A Ray of Optimism,’ released in late February 2024, outlines the ongoing challenges faced by African countries in managing elevated debt levels. The increased demand for foreign exchange to finance imports, coupled with limited domestic financial market development and high interest rates, has intensified external indebtedness.
As of 2023, Africa’s external debt reached approximately $1.16 trillion, representing 60% of the total public debt stock. Projections suggest a slight increase to $1.17 trillion in 2024 and potentially reaching $1.29 trillion by 2028 due to rising financing needs driven by population growth.
The Debt Management Office of Nigeria has reported a total public debt of N142.3 trillion as of September 30, 2024, marking a 5.97% increase from June 2024. Debt servicing costs have exceeded N7 trillion, primarily due to obligations to multilateral and bilateral creditors and significant interest payments on loans.
The Afreximbank Research highlights infrastructure, healthcare, and education financing as major contributors to Africa’s debt burden. The aggregated debt-to-GDP ratio surged to 71.7% in 2023, reflecting a 39.3 percentage point rise since the 2008 global financial crisis. Increasing global interest rates and borrowing from non-traditional creditors compound the debt servicing challenges in the continent.
Despite these difficulties, Nigeria has actively engaged the international capital markets, issuing a $2.2 billion Eurobond in December 2024. The report indicates expectations for further issuances as central banks lower interest rates, although Nigeria’s macroeconomic stability faces risks, such as currency depreciation and low foreign reserves.
Afreximbank has offered actionable recommendations for Nigeria and other African nations to successfully manage their debt environments. The emphasis is on strengthening fiscal measures, engaging in debt relief, promoting long-term growth strategies, and advocating for reforms to the global financial architecture.
The report further advises that African nations enhance tax revenue through value-added tax systems and assess public expenditures for greater efficiency in key sectors such as healthcare, education, and infrastructure. Performance-based budgeting and the establishment of dedicated Debt Management Offices are crucial for monitoring sustainability and risk assessment.
Afreximbank concludes that while Africa’s debt landscape exhibits stabilization signs in the medium term, challenges remain. The region’s macroeconomic tailwinds, coupled with reduced interest rates and improved access to capital markets, support positive fiscal sustainability indicators as it navigates recovery from the crisis.
In summary, Nigeria and nine other African countries hold a significant proportion of the continent’s external debt, which poses various challenges. The Afreximbank report emphasizes the need for effective management strategies and policy reforms to address soaring debt levels and improve fiscal sustainability. Despite the ongoing difficulties, there are indications of potential stabilization, driven by macroeconomic improvements and better access to international capital markets.
Original Source: economicconfidential.com
