Nigeria is one of the 10 African countries that collectively hold 69 per cent of the continent’s total external debt, according to a report by Afreximbank Research.
The report, which was released late February and titled, ‘African Debt Outlook: A Ray of Optimism’, highlights the challenges and opportunities facing African nations in managing their debt.
The Afreximbank Research report stated that in the first half of 2024, 10 African nations constituted 69 per cent of the continent’s total external debt stock, up from 67 per cent in 2023.
It said Nigeria accounts for eight per cent of this debt. The other countries leading in external debt are South Africa (14 per cent), Egypt (13 per cent), Morocco (six per cent), Mozambique (six per cent), Angola (five per cent), Kenya (four per cent), Ghana (four per cent), Côte d’Ivoire (three per cent), and Senegal (three per cent).
“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 rose to N142.3tn as of September 30, 2024, representing an increase of 5.97 per cent (N8.02tn) compared to N134.3tn in June 2024.
In the first three quarters of 2024, debt servicing was in excess of N7tn on the back of higher obligations to multilateral and bilateral creditors, alongside significant interest payments on commercial loans.
The Afreximbank Research also sheds light on the broader issues that have contributed to Africa’s increasing debt burden. These include infrastructure development, healthcare, and education costs in emerging markets, which often necessitate extensive financing through loans and other debt instruments.
The report noted that the aggregated debt-to-GDP ratio surged by 39.3 percentage points post-2008 GFC, reaching 71.7 per cent of GDP in 2023.
Elevated global interest rates have further complicated the landscape, amplifying debt-servicing challenges, particularly given the significant borrowing from non-traditional creditors, including private sector entities and emerging bilateral partners.
Despite these challenges, Nigeria tapped the international capital markets through Eurobond issuances. In December 2024, it issued a $2.2bn Eurobond.
The report suggests that as central banks continue to lower rates, further issuances are expected, easing immediate fiscal concerns even though macroeconomic stability remains fragile, with risks such as currency depreciation and low foreign reserves.
The continental bank went on to make recommendations for Nigeria and other African countries on how to weather the storm.
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 concluded that African debt exhibits signs of stabilisation in the medium term, driven by macroeconomic tailwinds, reduced interest rates, and improved access to capital markets. While challenges remain, the region displays positive fiscal sustainability indicators as it navigates the post-crisis recovery landscape.
