Nigeria and other African countries would require approximately $74 billion in debt servicing this year due to increasingly constrained access to affordable funding, according to Prof Kevin Urama, Vice President and Chief Economist, Economic Governance and Knowledge Management, African Development Bank Group (AfDB).
This declaration was given during his opening remarks at the launch of the Debt Management Forum for Africa and the Inaugural Policy Dialogue on “Making Debt Work for Africa: Policies, Practices, and Options” in Abuja on Monday.
“In 2024, the continent will require more than $74 billion for debt servicing alone. When hidden debt and contingent obligations are taken into account, the sum might be significantly larger.
From 2025 to 2033, the liquidity needs for debt refinancing remain high, with an average of $10 billion each year. African Eurobond yields have surged to 15% in 2023, more than doubling the rate in 2019, complicating debt refinancing, he noted.
According to Urama, Africa’s public debt has increased by 170 per cent since 2010, owing to structural flaws in the global debt architecture, recent global and domestic shocks, and shortcomings in the continent’s macroeconomic fundamentals.
He stated that most middle-income African countries could remain in the middle-income trap for decades and that it could take the continent more than a century (108 years) to shift to high-income status.
The World Bank’s Africa Pulse report for October 2024 forecasted a modest economic rebound in Sub-Saharan Africa, with growth of 3% in 2024 compared to 2.4% the previous year.
The AfDB’s top economist noted that the DeMFA’s establishment and effective functioning were important for reacting to the continent’s ongoing headwinds, strengthening economic resilience, and advancing its development.
He revealed that the debt structure had altered dramatically, with approximately 49 per cent of the continent’s debt being privately owned at the end of 2023, and this figure was predicted to rise to 54 per cent by 2024.
“The changing debt structure towards private creditors presents both opportunities and challenges. For example, African countries pay 500 per cent more in interest expenses when borrowing from foreign capital markets than from multilateral development institutions such as the African Development Bank, the World Bank, and others.
“Using short-term, high-cost debt to finance long-term development projects, therefore, has implications for debt sustainability and debt restructuring in the medium to long terms,” said Urama.
He observed that, while Africa’s state debt-to-GDP ratio was dropping, the high cost of debt payment was exacerbating the continent’s debt burden.
“Africa’s average public debt ratio, which rose from 54.5 per cent of GDP in 2019 to 64 per cent in 2020, stabilised at around 63.5 per cent from 2021–23 and is expected to decline further to around 60 per cent from 2024—halting a decade-long upward trend.”
However, Africa’s debt payment costs have skyrocketed, diverting resources away from infrastructure investment and limiting future GDP growth and economic transformation.
For 49 African countries, the average debt servicing cost increased dramatically from 8.4% of GDP in 2015-19 to 12.7% in 2020-22,” he stressed.
Nigeria’s debt increased by 10.38% quarter on quarter to N134.30 trillion ($91.35 billion) in the second quarter of 2024, owing to the naira’s 47.6% depreciation as of June.
Urama emphasised that access to emergency credit was heavily biased towards rich economies that needed it the least.
He said, “For example, of the $650 billion in SDRs issued by the IMF in 2021 to assist countries in navigating the adverse effects of the pandemic, Africa received $33 billion, or 5.1% of the total available envelope.”
Furthermore, Africa’s part of the $17 trillion (or 19% of global GDP) spent on fiscal measures to combat the pandemic in 2020-21 was only $89.5 billion (0.5%). The same patterns may be seen in the scale and flow of the global climate financing system.
“Our estimates show that resources freed from these reforms could secure about $169.4bn a year in development financing, or equivalent to about 42 per cent of the estimated annual financing gap.”
According to the AfDB’s chief economist, some estimates imply that African countries lose more than $1.6 billion per day in capital outflows as a result of high-risk premiums, international profit shifting, illicit financial flows, corruption, and other factors.
“Measured annually, this could reach about $587bn—more than three times the total external financial inflows to Africa each year,” he told journalists.
