Nigeria is one of the 10 African countries that together account for 69 per cent of the continent’s total external debt, according to the Africa Trade Report 2024 by Afreximbank Research.
Released in late February, the report titled “African Debt Outlook: A Ray of Optimism” examines the challenges and opportunities African nations face in managing their debt.
The Afreximbank Research report revealed that in the first half of 2024, 10 African countries accounted for 69% of the continent’s total external debt, up from 67 per cent in 2023.
Nigeria holds 8% of this debt, while South Africa leads with 14%, followed by Egypt (13%), Morocco (6%), Mozambique (6%), Angola (5%), Kenya (4%), Ghana (4%), Côte d’Ivoire (3%), and Senegal (3%).
“Africa’s external debt levels remain elevated, primarily due to the limited development of domestic financial markets and high interest rates. The growing demand for foreign exchange to finance imports has further exacerbated external indebtedness, fuelled 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 $1.16tn and representing 60 per cent of the region’s total public debt stock as of 2023. Projections indicate a slight increase to $1.17tn in 2024, with sustained growth anticipated, potentially reaching $1.29tn by 2028.
“This trend is driven by the continent’s increasing financing requirements, largely due to population growth pressures,” part of the report read.
According to the Debt Management Office, Nigeria’s total public debt reached N142.3tn as of September 30, 2024, marking a 5.97 per cent increase (N8.02tn) from N134.3tn in June 2024.
Debt servicing exceeded N7tn in the first three quarters of the year, driven by rising obligations to multilateral and bilateral creditors, along with substantial interest payments on commercial loans.
The Afreximbank Research also highlights key factors driving Africa’s rising debt burden, including infrastructure development, healthcare, and education costs in emerging markets. These sectors often require substantial financing through loans and other debt instruments.
The report noted that Africa’s aggregated debt-to-GDP ratio rose by 39.3 percentage points after the 2008 financial crisis, reaching 71.7 per cent in 2023. High global interest rates have worsened debt-servicing challenges, especially with increased borrowing from non-traditional creditors, including private sector entities and emerging bilateral partners.
Despite these challenges, Nigeria accessed international capital markets through Eurobond issuances, including a $2.2bn Eurobond in December 2024.
The report suggests that as central banks lower rates, further issuances are expected, providing short-term fiscal relief.
However, macroeconomic stability remains fragile due to risks like currency depreciation and low foreign reserves.
Afreximbank provided recommendations for Nigeria and other African nations on navigating debt challenges, emphasizing sustainable borrowing, economic diversification, and improved debt management strategies.
It stated, “Africa is navigating a complex debt environment, but the tide can be turned through targeted, actionable policies. Policymakers must prioritise robust fiscal measures, engage strategically with debt relief initiatives, promote long-term growth, and advocate reforms to the global financial architecture. Below, we outline specific, stakeholder-tailored recommendations, ranked by urgency and impact, and supported by successful examples from countries like Rwanda, Ethiopia, and Kenya.
“Strengthen value-added tax and leverage digital tax collection mechanisms to increase tax revenue. Reassess and redirect public expenditures towards high-impact sectors, including healthcare, education, and infrastructure development.
“The adoption of performance-based budgeting will be critical to ensure that resources are allocated efficiently and yield measurable outcomes and establish well-resourced DMOs tasked with continuously monitoring debt sustainability and enhancing risk assessment capabilities.”
Afreximbank noted that African debt is stabilizing in the medium term, driven by favorable economic conditions, declining interest rates, and improved capital market access.
Despite ongoing challenges, the region shows promising fiscal sustainability as it recovers from the crisis.
